The best state to form an LLC for an Internet business will depend on your situation. Many businesses form a Limited Liability Company (LLC) in their home state because it seems to be the most obvious choice, or they didn’t realize they had other alternatives.

A good number of internet business owners also find their home state the best state to form an LLC due to convenience and familiarity with filing methods and requirements. But one thing to note is that filing your LLC in your home state may not be the cheapest option.

The rates of fees and taxes vary differently in each state, which means you can save a significant amount of money should you decide to register in a different state. You may also have other significant reasons to incorporate outside your home state, but generally the state in which you’re physically present is the best option.

If you decide to incorporate your LLC outside of your home state, and you have employees or a physical presence in your home state, then you will be expected to incorporate your business in your home state. In this scenario, you will need to be incorporated in both states. Your home state will now consider your business as a foreign company. Also, you’ll have to generate annual reports and pay taxes and filing fees in both states.

Have it in mind that choosing to form an LLC in a particular state simply based on your physical presence there is typically justified. Generally, you should form your LLC in the state in which you’re conducting the most business. For example, if you’re currently in Nevada and operating an Etsy store, you will want to form your LLC in Nevada.

Non-U.S. residents have more options on which state to form their LLC. Every state varies in tax breaks, charges and fees, incentives, and penalties they may impose on businesses. Howbeit, even if you incorporate in a foreign state like Wyoming, your company may still be subject to registration as a “foreign entity”.

A corporation or LLC conducting business in one state when incorporated in another is considered a foreign corporation and is expected to fully qualify as a foreign LLC or corporation to legally do business in that state.

For instance, a business incorporated in Texas that wants to do business in Maryland would be considered a foreign corporation in Maryland, and as a result, the Texas Corporation must qualify (or register) as a foreign corporation to do business in Maryland.

Note that one biggest Con to incorporating in a different state is that your company will be required to file for authority to do business in the state where the business is located, and most likely will also have to acquire a Certificate of Good Standing or Certified Copy of the Articles of Incorporation (or Formation) from the Secretary of State where the company is incorporated.

Have it in mind that all these additional filing and document fees make the use of an alternative state substantially more expensive than incorporating at “home”. Obtaining a foreign qualification in your state is a legal obligation. In case you fail to register your business, you may come across fines and back tax liability. Besides, if you’re not registered in a specific state, it means that you’re unable to sue in the same state.

Factors to Consider When Choosing the Best State to Incorporate Business

When thinking about incorporating a business, choosing to incorporate in a particular state simply because of your physical location is typically enough. Indeed, you may want to incorporate an Internet Business in the state where you’ll be conducting your business.

However, if you are a non-U.S. resident, you have many options on which state to incorporate. Each State offers various incentives and penalties for incorporating a business, providing tax breaks, or imposing hefty charges. Therefore, several factors must be considered before choosing the best state to incorporate a business online:

  • Tax filing fees – these are the costs associated with filing the various corporate tax forms with the IRS.
  • Laws and regulations for businesses –
  • Every state has a different law. Once you choose the best state to incorporate your online business in, you’ll be required to follow their laws and regulations.
  • Income tax – this is in consideration income tax for the corporation because the corporation is now considered a separate entity.
  • Sales tax
  • Franchise taxes and regulations – this is only relevant for a business establishing a branch of an already existing business.
  • Your choice of moving in the state – you’ll need to give this a thought in case you’re willing to live there

3 Best States to Form an LLC for an Internet Business

The best state to form an LLC for an Internet Business in Wyoming, as long as you do not have a business presence already in another state. Otherwise, it is advisable to form your LLC where you have a business or industry influence.

Wyoming is a good choice as its fees are lower and the state offers asset protection and does not charge taxes for capital gains. Businesses also experience more privacy in Wyoming, as the members’ names are not disclosed. If you are a non-resident, you can choose from one of the various states mentioned below;

  1. Delaware LLC

Delaware is indeed one of the most popular business-friendly jurisdictions in the United States, especially for internet businesses. The state does not charge out-of-state income taxes, which is especially good for online LLCs who are doing minimal business transactions in the state itself.

It has no initial filing fees, and franchise taxes are also low compared to others. Also note that the state has the Chancery Court, a system solely dedicated to business matters, which means that disputes are handled much faster in Delaware than in other states.

  1. Wyoming LLC

Just like it was mentioned above, due to having the most protective charging order laws, Wyoming is a great contender as the best state to form an LLC for an internet business. These policies ensure the safety of your LLC assets from personal liabilities regardless of whether you’re a sole owner or not.

Have it in mind that most non-US and digital corporations register their LLC in this state to reduce tax liabilities. Aside from its strong asset protection and cost-efficiency, Wyoming also allows non-US companies to have a US LLC subsidiary to conveniently facilitate US transactions.

  1. Nevada LLC

Just like Delaware, Nevada doesn’t have registration fees for businesses that intend to form their LLC in the state. Nevada does not charge LLCs for state income, corporate, or franchise taxes.

The formation of a single-person corporation is also allowed. Also, note that Internet businesses can easily comply with Nevada law as the state does not require operating agreements or annual meetings. Nevada also has no formal information-sharing agreement with the IRS, allowing online business owners to remain anonymous.

Conclusion

When you are ready to start your Internet business, choosing which state to form your LLC is a tricky process. You may find yourself attracted by cost-effective perks offered by business-friendly states like Delaware, Wyoming, or Nevada.

And you also have the option to choose your home state out of utmost convenience and market familiarity. Since as an online company, flexibility is part of your edge. It would be a wise move to take advantage of the outlined benefits listed in this article and file your LLC in a state where your profits outweigh your losses.

Ajaero Tony Martins