What is the Best State to Form an LLC for your eCommerce Startup?

Intro

There’s a lot to think about when launching a new ecommerce store. What will you sell? How will you ship? What are the best channels to advertise your wares and promote your brand?

Here’s something else to think about: What kind of legal structure will you choose for your business? For many ecommerce startups, the LLC model is the way to go. But it brings with it an important question: What’s the best state for your LLC to be based in?

There can be some significant differences between starting an LLC in Florida, in Wyoming, in California, or in Tennessee. These differences include regulatory concerns, annual fees, and beyond. So how do you know which state is best-suited for your ecommerce startup? Consider some general principles for choosing where to launch your ecommerce LLC.

What is an LLC?

Maybe we should back up: Before getting into state-by-state variations, let’s make some general points about what an LLC is and how it works.Determining the best state to form an LLC for your eCommerce startup can be a complex task. Simplify the process by checking out llcbuddy, a reliable resource that can guide you through your entrepreneurial journey.

LLCs at a Glance

An LLC, or limited liability company, is a type of legal structure that you can choose for virtually any business. The LLC creates a separate legal entity, meaning that the _business _is distinct from the business owner. (As opposed to a Sole Proprietorship, where there is no such separation made.)

The Benefits of Starting an LLC

The LLC structure is one of the most popular in the United States, and it’s not hard to understand why. Some of the most significant benefits include:

• Limited liability. First and foremost, LLCs limit personal liability, providing LLC members with a level of protection against creditors and lawsuits. Someone taking legal action against your LLC may be able to seize business assets, but _not _your personal or family assets.
• Taxation. LLCs also get to choose how they are taxed. Most LLCs choose to be taxed in the same way as Sole Proprietorships, only paying taxes on the profits that are claimed on personal tax returns. In this way, LLCs allow you to avoid the “double taxation” of paying on business profits, then paying _again _on personal profits.
• Administrative simplicity. Finally, LLCs are easier to start and easier to run than corporations, with far fewer regulatory burdens. LLCs won’t require you to hold annual shareholder meetings, and you’ll have plenty of freedom as to how you want to structure the day-to-day management of your business.

What’s the Best State to Form an LLC?

When you launch an LLC for your ecommerce startup, you have the freedom to base it in any state you want. So what’s the best option? Here’s some general advice on where to base your new ecommerce LLC.

Start Where You Are

For the majority of entrepreneurs, the best place to launch an LLC is going to be the state where you currently reside. Yes, there are some exceptions, and we’ll get to those in a moment. But as a rule of thumb, we’d advise starting your LLC in the state you call home. Typically, this will be the easiest and the most affordable option, more likely to achieve business success.

Exceptions to the Rule

Here are a few instances where you might not want to start your LLC in the state where you live:

• You live in one state but operate your business in another. This typically isn’t the case for online-only businesses, including ecommerce stores, but if you tend to do most of your business in a specific state other than your own, it might make sense to choose _that _state for your LLC.
• You’re investing in real estate. Again, probably not a major consideration for ecommerce stores, but if you do plan on using your LLC to invest in real property, you may want to base the LLC in the state where the property is located.
• You’re not a resident. If you don’t actually live in the United States, then the home state rule of thumb obviously doesn’t apply to you! Talk with a tax expert or business attorney to determine the best state to base your LLC in.

States with LLC-Friendly Laws

If you’re in this last category and want to shop around for the most LLC-friendly state, we can make a few general recommendations. These are all states where starting an LLCcan be particularly advantageous for achieving business growth:

Delaware

Delaware has an overall business-friendly regulatory environment, and the state offers LLCs a lot of privacy and confidentiality. Indeed, this state has one of the most business-friendly reputations in the country, with an astonishing 67 percent of all Fortune 500 companies incorporated in Delaware.

Also take note that, for Delaware LLCs, the initial state filing fees and franchise taxes are lower than in other states. Actually launching your LLC is quick and easy in Delaware, and once the company is up and running, annual reporting and tax filing are both available via easy online platforms. All things being equal, Delaware is probably the single most easiest state in which to create a new LLC.

Wyoming

Wyoming is another popular state for LLCs, and particularly real estate investment LLCs. Low tax rates are a big part of this. Just consider some of the pros of starting an LLC in Wyoming:

• You won’t have to pay any franchise taxes.
• There are no corporate or personal income taxes.
• Sales tax rates are pretty low.
• LLC owners have to worry about only the most minimal reporting requirements.

In other words, this is another state that’s business-friendly in general, and favorable toward LLCs in particular.

Nevada

Nevada is still another great choice for starting an ecommerce LLC, boasting perks such as privacy and low taxation. In fact, Nevada has long attracted entrepreneurs from across the country, who flock to the state to take advantage of the favorable tax environment.

Specifically, Nevada levies no personal income taxes, no corporate income taxes, and no franchise taxes. With that being said, keep in mind that Nevads does require business owners to pay annual filing fees and annual license fees. Even so, it remains a great place to create and maintain a new LLC for your ecommerce store.

Alaska

You might also wish to consider launching your new LLC in Alaska. Why? Again, it’s largely about the tax environment, as Alaska does not impose any sales taxes or income taxes. While cities can levy their own individual sales taxes, these are usually quite minimal.

Additionally, the fees associated with starting an LLC in Alaska are pretty minor when compared with most other states. For anyone looking to start a new LLC without a lot of startup capital or ongoing tax burdens, Alaska is definitely worth considering.

Starting an LLC: Frequently Asked Questions

As you consider the best places to start your LLC, keep a few commonly asked questions in mind.

Can you live in a different state than the one where you base your LLC?

You absolutely can, though some states will require you to register the business as a “foreign” LLC. Also, note that you’ll need a registered agent who has a physical address in the state where you base your LLC.

How many registered agents does my LLC need?

You will need to have a registered agent in every state where your LLC does business. A registered agent is simply someone with a physical address in the state, who can receive legal and tax documents on the company’s behalf. Some states will allow LLC members or employees to serve as registered agents, while others will dictate that you hire a third-party service to function in this role such as Northwest Registered Agent.

What about getting a business license?

Your need for a business license depends on the state you’re basing your LLC in; some do require ecommerce stores to have a business license while others do not. And this can work well for a while. However, you’ll find that many potential clients, especially the bigger ones, require you to be registered as a business before starting a contract. Or you may want to protect your personal assets in case there’s a financial conflict with your business.Taking the journey of becoming an international freelancer? Solidifying your presence in the market by registering as an LLC could be a smart move. Check out these top llc formation services to get started in a few straightforward steps.

Is the LLC structure a good option for ecommerce stores?

Because it’s so easy and affordable to start an LLC, and because the ongoing maintenance of an LLC is pretty minimal, this legal structure tends to be a good option for any type of new business, and that very much includes ecommerce stores. Additionally, merchants who want to minimize their level of personal risk will benefit from the LLC’s asset protection.

How much can I expect to pay in terms of LLC filing fees?

It will vary a great deal from state to state, and in the section above you can find some of the most affordable states for launching an LLC (including Delaware, Nevada, Wyoming, and Alaska). As a rule of thumb, you can expect your filing fees to be anywhere from $30 to $300.

Determining the State of Your LLC

When you launch an ecommerce LLC, one of the most important decisions you’ll make is which state to base it in. Use these guidelines to ensure the most prudent choice for your business. By choosing a state that offers low-maintenance and low-cost LLC formation, you can optimize your odds of long-term ecommerce success.