Best State To Form An LLC In 2022

Best State For LLC Formation: Everything You Need to Know

Let’s assume that you concluded all plans to set up your online business, built a website and acquired all the necessary materials to start your journey. Your transition to a full-on business owner is nearly complete: now, all that is left to do is to incorporate a limited liability company LLC.

Now you might be wondering what an LLC is? A limited liability company (LLC) is a business structure that provides owners with low personal responsibility. Additionally, an LLC may provide certain tax advantages. Although it’s not compulsory, the benefits far outweigh conducting business without forming it.

That said, the state in which you incorporate your LLC for your online business makes a difference; because of this, it is crucial to be aware of any prospective benefits that might aid in the success of your business. It doesn’t matter where your firm is physically located since an LLC can be incorporated in any state. With so many states to choose from, deciding where to incorporate your LLC might be challenging.

Certain states typically outperform the others when it comes to essential formation concerns like business-friendly legislation, competent courts, pricing, opening a bank account, taxes, and greater privacy. As a result, before forming your internet company, you should investigate the most satisfactory state to establish your LLC in, from your home state to the other 50 states.

So, which is the best state to form LLC for online business in 2022?

There are various elements to consider when deciding where to incorporate an LLC, including taxes, regulatory burdens, and the availability of a skilled workforce. This post will look at the best five business-friendly states to create an LLC from a business environment standpoint.

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Foreign LLCs vs. Domestic LLCs

LLCs can be divided into two categories: domestic and foreign. Although the two kinds are relatively similar, their physical presence sets them apart. According to the Legal Information Institute, An LLC is a Domestic LLC registered in that state and does business there. Any company established in that state but did business elsewhere is considered a Foreign LLC.

For example, if you live and do business in Delaware, you would form your LLC there. Because you do your business in that state, your LLC is a Domestic LLC. However, if you created your LLC in Delaware but did business in South Dakota, your business would be a Foreign LLC. Your LLC is treated as a foreign entity in that state, even though you must complete the identical paperwork they need to form a new LLC there.

So why is this significant?

If you want to start an LLC in a different state, you may need to create two separate entities: one in the state where the company will be formed and another in your home state. An LLC may be formed in Arizona, for example, if you are from Missouri. A foreign LLC must be registered in Indiana for the corporation to do business in your state. Every aspect of your business will double if you set up two LLCs. The price covers two state filing fees, registered agents in both states, two yearly reporting fees, and more. Managing two limited liability companies may quickly increase your expenses and problems.

Foreign LLC incorporation has the primary benefit of allowing you to take advantage of all the state-sponsored business incentives. The foreign state assures your safety, and you may even appear in their courts.

Forming an LLC in Your Home State

Most small companies find that incorporating or creating an LLC in their home state is the most stress-free and least costly alternative. When you incorporate an LLC in your home state, you have a significant advantage since you are already acquainted with the rules and processes, have connections, and all government agencies are located inside your state.

When you create an LLC outside your home state, you must maintain and select a registered agent for the LLC in the state(s) of formation and pay initial and recurring fees. You must also appoint a registered agent in each state where your LLC must be internationally qualified.

You should also examine the possibility of “double taxation” if you intend to incorporate an LLC out of state and do business in your home state. If you want to do business in a foreign state, you must rigorously adhere to the foreign qualifying procedure in that state.

However, incorporating an LLC outside your state may have several advantages, especially if your home state has significant tax consequences and harsh laws. If that is the case, here are several states where you may create an LLC with confidence.

That said, let’s find out which state to file your LLC.

5 Best States to Start an LLC in 2022

Searching for a swift response? The ideal state to incorporate a limited liability corporation (LLC) is usually your home state. This is because your firm conducts most of its operations in that state, whether physical or online. If you choose not to form your LLC in your home state, we recommend Delaware or Nevada.


Delaware has a long-lasting and proud history of being one of the most business-friendly states in the country. In 2020 the state had a record-breaking 249,427 new formations, up 10% from the previous year. According to the same LLC formation 2020 report, the state still dominates as the state of choice for publicly traded companies, with 67.6% of Fortune 500 companies in that year. 

So why is Delaware this popular among new businesses?

Firstly, initial state filing costs and franchise taxes are cheaper in New Hampshire than in other states. Out-of-state income is also not taxed in Delaware. The filing procedure is straightforward, allowing LLCs to get up and running fast.

The Chancery Court is another distinctive feature of Delaware. Delaware has three constitutional courts, with this one being the third (alongside the Supreme Court and Superior Court).

The Chancery Court hears solely commercial disputes. This implies that business-related matters are settled significantly faster than in courts that hear all types of claims. Furthermore, the Chancery Court justices have much more expertise with commercial proceedings.

You may also incorporate an LLC if you want substantial Delaware liability protection. You don’t have to be concerned even if someone sues your firm and you lose the case. Your assets will not be used to repay the obligations as collateral. Instead, all debts will be levied against the LLC’s assets.

However, You must pay some fees and taxes to establish a business. Although there’s a reasonable probability that Delaware is a better place to do business than your current location.


  • Business-friendly
  • Easy filling process 
  • Low filing costs
  • Franchise taxes are low.
  • No corporate income taxes for overseas LLCs are taxed as corporations.
  • Business Court of Chancery


Another state attracts a lot of interest from company owners who wish to avoid incurring hefty taxes in Nevada.

Nevada is a state with benefits for LLCs as its pro-business image grows. In particular, business owners like that Nevada does not tax business revenue, capital gains, or inheritance. Furthermore, there are no franchise taxes. Having said that, Nevada does compel company owners to pay yearly registration and filing costs.

Nevada may be the best state for your LLC if you want some privacy. In Nevada, the state may make public filings anonymous. This feature implies that the state grants LLCs secrecy, allowing them to remain nameless in public registration forms. Furthermore, the state does not cooperate with the IRS regarding information exchange. Finally, Nevada L.L.C. provides considerable asset protection. You will not be held liable for the liabilities of your firm.

Running an LLC in Nevada is simple since no annual meetings or operating agreements are required.

The registration procedure is straightforward and takes fewer steps than in other states.


  • There are no state income or corporation taxes.
  • There are no franchise taxes.
  • LLC owners might choose to remain anonymous.
  • There is no information-sharing agreement with the IRS.
  • There is no need for operating agreements or yearly meetings.


Wyoming is rapidly gaining momentum in the world of LLC creation, despite not being as well-known as Delaware and Nevada. Wyoming, like Nevada, has no corporate income or franchise taxes. It also offers a “lifetime proxy,” which provides even greater anonymity than Nevada.

Wyoming has cheap costs and excellent tax incentives for anyone wishing to form an LLC. The first filing price is a mere $100, and yearly reports are only $50. Wyoming LLCs also have the nation’s best asset protection laws and a business-friendly tax framework, with no corporation or personal income taxes.

Wyoming has the 44th highest local tax rates in the nation. Hawaii and Alaska are the only two states with lower averages among the 46 states that levy sales taxes (four states have no sales tax).

Finally, forming an LLC in Wyoming provides liability protection. The corporation is treated as a distinct legal entity with its Federal tax ID number. As a result, the company is liable for its obligations, and You will never utilize your assets to compensate for business losses.


As a company owner, you may have never considered forming an LLC in Alaska. However, the state has several advantages when it comes to various taxes.

In practice, Alaska does not levy both sales and income taxes. Nevertheless, local cities have the authority to manage taxation, and certain towns may collect the abovementioned taxes.

Alaska also provides tax breaks and a variety of lending packages to fledgling enterprises. There are credits for oil and gas services, mineral exploration, film production, new area development, and other activities.

These tax advantages and lending alternatives may significantly reduce your initial expenses when incorporating a new LLC. However, you will likely need an operational presence in the state to qualify.

The state fees involved with incorporating an LLC in Alaska are pretty low compared to other states.

South Dakota 

Like the other states on our list, South Dakota has no state income taxes (a common feature for most business-friendly states). South Dakota also has several benefits in terms of various taxes. South Dakota also offers a 0% corporate tax rate, making it an excellent spot to establish a corporation-taxed LLC and boost your tax savings. The filing procedure is simple, inexpensive, and may be performed online without unique credentials.

Worst states for forming an LLC

You’ve already learned about the business-friendly states. Now it’s time to look at the worst of the worst. Here are the top five worst states to form an LLC in:

  • State of New Jersey
  • California.
  • New York City.
  • Connecticut.
  • Minnesota.

Final Thoughts

The formation of an LLC differs from state to state. As you can see from this article, certain conditions benefit LLC owners over others. That being said, you need to prioritize forming an LLC in your home state. It’s cheaper and simpler to set up a domestic LLC than a foreign LLC, and it’ll be better for your company in the long run.

Some states are more business-friendly than others and thus could charge less to register an LLC. Unless you intend to do business in more than one state, registration costs should not be the deciding factor when choosing where to establish your LLC. 

Delaware is the ideal state to register an LLC if you’re searching for a state that is generally business-friendly. 

Due to its business-friendly legal framework and substantial business revenue, the state is home to several fortune 500 corporations.

Nevada, Wyoming, Alaska, and South Dakota have the lowest rate and annual filing charges among all states. With Wyoming topping the list.

Finally, even if you get tax advantages in one state, you will still be liable to pay taxes in your home state. Aside from the additional expenses, various accountants, attorneys, and registered agents that come with having two LLCs, there are several other hassles.

Frequently Asked Questions (FAQs)

Can You Form an LLC in Any State?

Yes, you can incorporate an LLC in any state as long as you qualify and comply with the laws of that particular state. However, always consult with your attorney to find out if an out-of-state LLC will be more favorable than forming an LLC in your home state.

What is the least expensive state in which to form an LLC?

Suppose you want to start your internet company using the most straightforward and cheapest method possible. In that case, your home state will be of more assistance if it offers the lowest filing and maintenance fees and beneficial taxes. If that is not the case, consider business-friendly states such as Delaware, Wyoming, and Nevada.

Why is Delaware the best place to form an LLC?

Business owners operating in Delaware may take advantage of many incentives. In a business-friendly atmosphere, privacy and legal safeguards make it enticing. Small enterprises are less likely to benefit from these advantages. Delaware is a popular choice for businesses because of this.

Do I need an LLC to run an online business?

Incorporating an LLC is an excellent method for any business to legitimate its operation and safeguard its resources. Using an LLC as an additional layer of security for your internet company is a straightforward and cost-effective solution since it simply needs establishment in your home state.

What is the Best State to Form a Real Estate-Focused LLC?

The state where your property is situated. Why? Because the commercial operations and revenue produced by real estate are nearly typically limited to the state where the property is located. As a result, incorporating an LLC in the state or forms where you hold property is the most cost-effective option.

What is the Worst State to Incorporate an LLC for an Online Business?

According to the Tax Foundation, 2021 State Business Tax Climate Index[4], New Jersey is the worst state to incorporate a business based on business friendliness. So, consider an out-of-state LLC formation if you reside in such conditions.

Does it matter what state you form your LLC in?

Yes, it does. The corporate income tax, sales tax, and individual income tax you must pay will be governed by the state where you incorporate your LLC. In addition to taxes, the state you choose will influence the creation and continuing expenses of your online Limited Liability Company.

Is it possible to create an LLC in a separate state? 

Yes, you may incorporate an LLC in a state other than where you reside. To utilize their physical address for your LLC filings, you must engage a Registered Agent. However, other states, such as Delaware, do not have a physical address requirement.



Hannah Collymore
Hannah Collymore
Business Writer
Hannah is a seasoned writer based out of Pennsylvania. With years of experience in various writing niches, she provides SEO and on-demand content for Businesses in all industries


He is an organized and creative thinking sales management professional with experience in outside and inside sales in various markets. Working as freelancer in the Greater Boston Market, he moved to St. Louis and became an Account Executive, then a Sales Manager managing and coaching 12 sales reps covering a nationwide territory. He has developed his team with a combination of consultative selling and value before price coaching mindset which has won him a President’s Cup and many other financially rewarding awards at RICOH. His most recent role as a Continuous Improvement Manager provided insight into the importance of delivering a quality product in alignment with the value and reputation of his organization. It further enhances the aspect of selling on value as opposed to price.

+ 2 sources

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  1. LII / Legal Information Institute. (2022). 26 CFR § 301.7701-5 – Domestic and foreign business entities. [online] Available at: [Accessed 6 July. 2022].
  2. Melson, B. (2021). Delaware’s 2020 Corporate Annual Report Just Released. [online] The HBS Blog. Available at:[Accessed 6 July. 2022].