When wondering if it matters where to form an LLC, business owners often wonder if they can live in a different state. The answer is yes; you can legally live in a different state than the one where you created your LLC. However, if you want it's a different story. For some companies, having an LLC outside their home state can be very beneficial, but for others, it could be the measure that causes the company to close. Yes, you can live in a different state than your LLC.
But “can” and “must” are two very different terms. Operating an LLC in a state where you don't live is legitimate, but it's not for everyone. Each state has different legal requirements for managing an LLC. If you live out of state, it may be more difficult to keep track of these requirements. And there may also be tax implications.
While the answer depends on your business—another reason to consult a legal professional—here's an overview of the best states to start an LLC. Unlike corporations, LLCs are not required to have officers or boards comprised of a director and trustees. Possibly the easiest business entity to create, LLCs are largely used by owners who want to protect their personal liability and take advantage of transfer or “continuous flow” taxes. And of course, consult an attorney to anticipate any legal risks involved in the formation of a foreign entity.
In general, online companies choose to be incorporated in states that are considered tax havens; incorporating in Nevada or forming a company in Delaware are the two most commonly chosen solutions. The state also allows the creation of a special type of LLC called a serial LLC, which consists of a parent LLC and one or more divisions, referred to as a “series”. For federal tax purposes, a single-member LLC is automatically taxed as a sole proprietorship, and a multi-member LLC is automatically taxed as a partnership. Once you obtain your certificate of status, your LLC will have to file the request form for a certificate of authority (or a similar document) in the new state.
For example, a company focused on cutting-edge technology could benefit from being formed in a state that has passed laws related to that technology. Whenever an LLC expands to another state, you must check that your name is available in the new state. An LLC also offers some protection to your company name because no other business entity in the state can have the same business name. When determining which state is the best for your LLC, it's essential to consult with legal and tax professionals. The procedure for forming an LLC outside your home state is similar to the process of filing an LLC within the state.
The process for forming an LLC outside of its home state involves filing an incorporation form with the appropriate office of the state government and paying the associated filing fee. In addition, each state has slightly different approaches to personal liability protection, especially for single-member LLCs. In short, while creating a foreign LLC may offer some benefits, it's essential to carefully consider the potential costs, business expenses, fees, and compliance requirements associated with this decision.
