Best State To Start An LLC: Comprehensive Comparison and Guide (2025)

Forming a Limited Liability Company (LLC) is one of the most popular ways to start a business in the United States. But one of the most important questions entrepreneurs face is: What is the best state to start an LLC? With 50 options available, the choice can be overwhelming.

This guide provides an in-depth look at the pros and cons of forming an LLC in different states and how to make the best decision for your business in 2025.

What is an LLC?

An LLC, or Limited Liability Company, is a business structure that blends elements of a corporation and a partnership.

It offers liability protection to its owners (called members), meaning personal assets are shielded from business debts or lawsuits. At the same time, LLCs benefit from pass-through taxation, avoiding the double taxation that corporations often face.

LLCs are highly flexible and can be owned by individuals, corporations, or even foreign nationals. They are favored for their simplicity, asset protection, and adaptable tax treatment, especially for small businesses and startups.

Pros of Forming an LLC

• Limited Liability Protection: Personal assets like homes and savings accounts are protected from business-related risks.

• Tax Flexibility: LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation.

• Operational Flexibility: Fewer administrative burdens than corporations.

• Credibility: Establishes a professional image for your brand.

• Ownership Flexibility: LLCs can have unlimited members, including foreign entities.

• Profit Distribution Control: Members can structure profit-sharing independently of ownership percentage.

Cons of Forming an LLC

• Self-Employment Taxes: Owners typically pay full Social Security and Medicare taxes.

• State Fees: Vary widely, some being burdensome long-term.

• Limited Funding Options: Venture capitalists often prefer corporations.

• Annual Compliance: Some states have extensive reporting and fee requirements.

• Perpetuity Concerns: In some jurisdictions, an LLC may dissolve when a member leaves.

Factors to Consider When Choosing a State for LLC Formation

When determining the best state to start an LLC, weigh these variables:

• Formation Costs: State filing fees can range from $40 to over $500.

• Annual Obligations: Franchise taxes and annual report requirements can vary.

• Tax Structure: Some states impose no income tax or franchise tax, which could be beneficial.

• Privacy Laws: Certain states allow anonymous ownership.

• Business Ecosystem: States with a strong entrepreneurial environment may offer better support.

• Legal Environment: Delaware, for instance, has a business-friendly court system.

• Physical Presence: If your business operates locally, forming in that state may simplify compliance.

How Much Does It Cost to Start an LLC?

LLC formation and maintenance costs include:

• Filing Fees: Kentucky is as low as $40, and Massachusetts is as high as $500+.

• Annual Franchise Tax: Delaware charges a flat $300, while California starts at $800.

• Registered Agent Fees: Typically between $100–$300 per year.

• Publication Requirements: States like New York require LLCs to publish a notice, adding hundreds to startup costs.

• Business Licensing: Varies by state and industry.

These factors significantly impact the best state to start an LLC based on your budget and needs.

Tax Benefits to Consider for Your LLC

Taxes play a huge role in selecting the best state to start an LLC. Consider:

• Income Tax-Free States: Wyoming, Nevada, and Texas don’t impose state income tax.

• Franchise Taxes: Some states charge flat fees or scale them based on revenue.

• Sales Tax Rates: Especially relevant for e-commerce and retail.

• Nexus Rules: If you conduct business in a state, you may be liable for taxes there.

• Foreign Tax Treaties: Important for non-resident owners to reduce double taxation.

Choosing a tax-friendly jurisdiction can significantly improve your bottom line.

How to Set Up an LLC as a Non-U.S. Citizen

Non-residents can easily establish an LLC in the U.S. Here’s a step-by-step breakdown:

1. Choose a State: Wyoming and Delaware are top picks for foreigners.

2. Designate a Registered Agent: A local agent is required to receive legal correspondence.

3. File Articles of Organization: Submit necessary documents to the Secretary of State.

4. Apply for an EIN: Needed for taxes and banking, even without a Social Security Number.

5. Open a U.S. Bank Account: Essential for operations and credibility.

6. Meet Annual Compliance Requirements: Pay fees and submit reports as required.

States like Wyoming are often the best states to start an LLC for non-U.S. residents due to privacy, low costs, and simple filing.

What Types of Businesses Are LLCs Best For?

LLCs are ideal for many types of businesses, including:

• Freelancers and consultants
• E-commerce and dropshipping businesses
• Real estate investors
• Tech and SaaS startups
• Content creators and influencers
• Small professional practices

The flexibility and protection make them a favorite across industries. But choosing the best state to start an LLC varies depending on the nature and scale of your business.

Top States to Form an LLC – Pros and Cons

Delaware

Pros:

• Court of Chancery for business cases
• Strong privacy laws
• No sales tax
• Preferred for large-scale businesses and startups

Cons:

• $300 franchise tax
• Complex for non-local operations
• May need to register again in your home state

Wyoming

Pros:

• No state income tax
• Anonymous LLCs allowed
• Very low annual fees
• Streamlined compliance

Cons:

• Less prestigious than Delaware
• Might still require dual-state registration

Nevada

Pros:

• No personal/corporate income tax
• No information-sharing with the IRS
• Strong privacy protection

Cons:

• High setup and renewal fees
• Requires a business license
• Suited more for businesses with a presence in Nevada

Texas

Pros:

• No personal income tax
• Booming economy
• Good infrastructure

Cons:

• Franchise tax applies
• No anonymity
• Registered agent needed

Which State is Best for a Non-Resident LLC?

Top choices for non-residents:

• Wyoming: Easiest for anonymous ownership, low costs, and no income tax.

• Delaware: Offers legal sophistication and credibility.

• Nevada: Great for e-commerce and intellectual property holding companies.

These are considered the best states to start an LLC for foreign founders due to ease of entry, strong privacy, and tax advantages.

Other Considerations: Top States to Form an LLC

• Privacy: Choose New Mexico or Wyoming for anonymity.

• Fast Processing: Delaware offers same-day LLC formation.

• Home State Operations: If you plan to operate locally, forming in your home state may be easiest.

• Legal Complexity: Delaware leads in resolving business disputes.

• Investor Appeal: Startups aiming for venture capital should lean toward Delaware.

• Compliance Ease: Wyoming has one of the simplest maintenance frameworks.

FAQs

Q: Can I form an LLC in a state different from my residence?
A: Yes, but you may need to register as a foreign LLC in your home state.

Q: What is the cheapest state to form an LLC?
A: Wyoming and Kentucky have some of the lowest formation and maintenance costs.

Q: Do I need a U.S. address to form an LLC?
A: No, but you’ll need a registered agent with a U.S. address in your LLC’s state.

Q: Can non-U.S. residents open a business bank account?
A: Yes, but some banks require in-person visits and proper documentation.

Q: Do I need to register in multiple states?
A: If you operate in several states, you may need to file as a foreign LLC in each of them.

Conclusion

Determining the best state to start an LLC requires evaluating your specific goals, budget, and long-term plans. While many entrepreneurs default to their home state, others benefit from the advantages offered by Wyoming, Delaware, or Nevada, especially non-residents or those seeking favorable tax and privacy laws.

For the best outcome, weigh all costs, legal protections, and business needs. Forming an LLC in the right state can provide a strong foundation for growth and success.

Need help setting up your LLC the right way? Easy Filing specializes in forming U.S. LLCs for both residents and international entrepreneurs — handling EINs, compliance, and all paperwork. Get started today with confidence and clarity.