Unbeknownst to many, you don't have to form a limited liability company (LLC) in the state where you live, you can form an LLC in whichever state you find most advantageous, even if you don't reside in that state.
Consequently, several states have become very popular for business formation, for instance:
Each of these states offers its own unique set of advantages in terms of startup costs, privacy, anonymity, asset protection, annual fees, and income taxes. The objective, however, is to identify the state that provides the most advantages to your business.
While you can form your LLC in whichever state you want, if you are planning to do business in a different state, you will not only be subject to the laws, taxes, and disclosure requirements of the state in which you formed, but also the state in which you are doing business.
In fact, for your LLC to do business in any state other than the state in which it was formed, you will be required to register the LLC as a foreign entity in that state. This means two registration fees, two annual filing fees, and two sets of maintenance requirements.
Also, bear in mind, the filing fee for a foreign entity is usually much higher than for a “domestic” entity. In Texas, the filing fee for a domestic LLC is $300, but $750 for a foreign LLC.
As a general rule, if you’re going to be doing business from a traditional, geographically-fixed, physical location in Texas, such as a medical practice or a butcher shop, then you are better off forming your LLC in Texas, where it will ultimately operate. Otherwise, you will still be required to register as a foreign entity to transact business in Texas, and you will only be wasting your time, effort, and money filing elsewhere.
One of the few exceptions to this general rule for businesses that are physically located in Texas comes into effect if the type of LLC you want to form is not permitted in the state. For example, Texas does not allow the formation of completely anonymous LLCs. Your only option for forming a completely anonymous LLC is to form in New Mexico, where that type of LLC is permitted, then register as a foreign entity in Texas where your business is located.
Remember, if you are going to be operating in multiple states, then you will need to register to transact business in all the states in which you will be operating.
If you’re not going to set up a traditional, physical location in Texas, but operate your business online or in some other non-centralized way, then it may be a good idea to look into forming in a state like New Mexico, Wyoming, Delaware, or any other state that is very friendly to LLCs like yours. States like these want to host these types of businesses and have worked very hard to establish an environment that will attract businesses that have geographic flexibility.
If you are thinking about forming an LLC in Texas, you may be wondering if Texas is a good state in which to form. Whether you are starting a new business or converting an existing business, forming an LLC in Texas offers several advantages, including:
It has become popular for businesses to form in states like New Mexico, Wyoming, and Delaware, and there are many good reasons for this. However, for most businesses, the drawbacks of forming in one of these states will outweigh the benefits.
Texas offers many advantages to LLCs formed in the state. Notably, its business environment and economic strength, asset protection for the members of the LLC, tax benefits, and a great deal of flexibility.
If your business has a physical location in Texas, it is probably best to form your LLC in Texas. However, if yours is one of the growing number of non-centralized businesses with geographic flexibility, you may benefit from forming in a state like New Mexico, Wyoming, or Delaware that can offer advantages that are unavailable in Texas.
Need help deciding where to form your LLC? We can help you weigh the pros and cons of forming an LLC in Texas or in a state like New Mexico, Wyoming, or Delaware. Call us today to arrange a free consultation with a knowledgeable and experienced Texas business attorney.
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