Creating an Out-of-State Limited Liability Company - dummies

Creating an Out-of-State Limited Liability Company

By Jennifer Reuting

If your limited liability company (LLC) isn’t a bricks-and-mortar business — maybe you’re running an Internet company or a consulting or service business that isn’t restricted to a particular state — and you live in a high-tax state, forming your LLC in another state may save you money in taxes and fees. Some states have worked very hard to structure their tax and LLC laws to make it desirable to domicile companies there.

Nevada: The small business tax haven

Nevada is notorious for being the ultimate state for small businesses. When Nevada wrote its LLC laws, it decided to allow one person to be all positions, which means that even though the LLC is considered a partnership, by law there needn’t be two members. But that’s not all! The number-one reason every entrepreneur and real estate mogul out there goes on and on about the benefit of Nevada is that there are no taxes . . . no franchise taxes, no corporate taxes, no personal income taxes.

No taxes is pretty cool, but there’s more! In Nevada, the members are not on the public records. This means that you can own an LLC and no one will even know about it. The managers are listed, so this only works if you are manager-managed, but this is pretty powerful, nonetheless. Why? Well, if a lawyer doesn’t know you own anything, she’ll most likely not want to sue you!

Some benefits of forming in Nevada are

  • One person can be all positions
  • Single-member LLCs are allowed
  • No corporate or personal income taxes
  • No franchise fees
  • Members are not public record
  • Nominee managers are legal
  • Non-U.S. citizens can be managers and/or members
  • Low filing fees

Delaware: The heavy hitter with the Chancery Court

Designing an LLC that needs room to grow? Delaware is perfect if you intend to grow really large and do business in several different states.

Most public companies want to be in Delaware because of its Chancery Court and its long history of case law. The Chancery Court is a special court that makes decisions about business matters. Delaware is the only state with such a court. Most states’ courts are backlogged, and it can take years for a judge to hear and decide on your lawsuit. Delaware can get things resolved in weeks instead of years.

That alone should be good enough, but the Chancery Court goes a step further. When you go to court in other states, you never know how much your judge actually knows about business. In Delaware, though, all judges in the Chancery Court are experts in matters of business and are renowned for their fair and educated decision making.

Some of Delaware’s benefits include:

  • The ever-famous Chancery Court
  • 300 years of business case law to lead the way
  • Delaware allows series LLCs
  • Fees are relatively low
  • No state tax on LLCs that are formed in Delaware but don’t operate there