When you’re establishing a limited liability company (LLC) in the US, one of the first decisions you need to make is where to register. While your home state is an obvious choice, each state has different rules, fees, and tax structures for LLCs, which can help or hurt your bottom line.

Below, we’ll explain what factors make certain states cheaper than others for incorporating an LLC, from filing fees and ongoing maintenance costs to potential tax savings. Here’s what you should know.

What’s in this article?

• How to choose the best state for incorporating your LLC
  
• Which states have the lowest LLC formation fees?
  
• What other costs are involved with forming an LLC?
  
• Cheapest states for ongoing LLC compliance costs
  
• What are the hidden costs of forming an LLC in a “cheap” state?
  
• How Stripe Atlas can help
  

How to choose the best state for incorporating your LLC

Unlike corporations, LLCs are formed rather than incorporated. Although the process of creating an LLC and a corporation is similar, forming an LLC is slightly simpler and cheaper than starting a corporation.

Here are the most important factors to consider when choosing a state:

• Business location: If your business operates primarily in one state, forming your LLC there is usually the easiest option. You can avoid the hassle and cost of registering as a “foreign LLC” in the state where you do business. In many cases, the administrative burden and fees for maintaining a foreign LLC outweigh the benefits of forming in a cheaper state.

• Privacy protections: Certain states have stronger privacy protections for LLC owners. If keeping your personal information out of public records is important to you, consider states such as Delaware and New Mexico that have strict confidentiality rules.

• Legal environment: Some states have well-established legal systems that cater specifically to business entities. For example, Delaware’s Court of Chancery is known for resolving corporate disputes with expertise and efficiency. This can make it an attractive option for businesses that anticipate complicated legal matters in the future.

• Pro-business reputation: Some states have a reputation for being more “business-friendly” than others, which can attract investors and partners. Delaware, for example, is a common choice for tech startups and large corporations because of its established corporate laws and pro-business climate.

• Future expansion: If you plan to scale your business beyond your home state, forming in a state such as Delaware, Nevada, or Wyoming might make sense. These states often have more flexible and lenient rules for LLCs looking to expand or operate in multiple locations.

• Taxes: States such as Wyoming and Nevada are known for offering businesses tax benefits. Consider income, sales, and payroll taxes, as well as other less obvious costs, in your decision.

• Fees: The fees to set up and maintain LLCs include filing fees, annual report fees, franchise taxes, and more. These fees vary by state. Make sure you fully assess all initial and ongoing costs.

Which states have the lowest LLC formation fees?

Here are the states with the lowest fees for forming an LLC as of 2024:

• Arizona: $50 filing fee and no annual reporting fees
  
• Arkansas: $50 filing fee and $125 annual fee
  
• Colorado: $50 filing fee and $25 annual fee
  
• Hawaii: $50 filing fee and $15 annual fee
  
• Iowa: $50 filing fee and $30 annual fee
  
• Kentucky: $40 filing fee and $15 annual fee
  
• Michigan: $50 filing fee and $25 annual fee
  
• Mississippi: $50 filing fee and no annual reporting fees
  
• Missouri: $50 filing fee and no annual reporting fees
  
• Montana: $35 filing fee and $20 annual fee
  
• New Mexico: $50 filing fee and no annual reporting fees
  

What other costs are involved with forming an LLC?

While states with low filing fees can be a good option for businesses that want to save on formation fees, consider other costs when choosing the best state for your LLC.

Here are the other costs you need to know when choosing a cost-effective state for an LLC:

• Annual report fees: Many states charge an annual fee to keep your LLC in good standing, often in the form of an annual report filing fee. These fees can range anywhere from $15 to $50 depending on the state.

• Franchise taxes: In addition to annual fees, some states require LLCs to pay franchise taxes. Franchise taxes are a fee for the privilege of doing business in the state. For example, California charges LLCs an annual tax of $800, while Wyoming and New Mexico have much lower ongoing costs.

• Registered agent fees: Most states require your LLC to have a registered agent—someone who receives legal documents on behalf of the business. You can act as your own registered agent, but many businesses choose to hire a professional service, which typically costs anywhere from $100 to $300 per year.

• Foreign LLC registration: If you form your LLC in one state but do business in another, you need to register as a foreign LLC in the state where you operate. This comes with additional filing fees and annual costs.

Cheapest states for ongoing LLC compliance costs

When considering ongoing LLC compliance costs, certain states stand out for being budget-friendly for annual report fees, franchise taxes, and other required expenses. While states such as Wyoming and New Mexico offer minimal ongoing compliance costs, it’s important to weigh these savings against other factors, such as tax structures and the legal environment—especially if your business plans to scale or operate across multiple states.

Here are some of the states with the lowest ongoing fees for LLC compliance:

• Arizona: No annual report fee and no franchise tax
  
• Arkansas: $150 annual franchise tax
  
• Colorado: $25 periodic report fee and no franchise tax
  
• Missouri: No annual report fee and no franchise tax
  
• New Mexico: No annual report fee
  
• Ohio: No annual report fee
  
• Wyoming: $60 annual report fee and no franchise tax
  

What are the hidden costs of forming an LLC in a “cheap” state?

A state with low up-front or ongoing costs might seem like the most appealing option for forming your LLC, but additional expenses can surprise you. Here are some of the most common hidden costs associated with registering in a “cheap” state:

• Foreign LLC registration: If you form your LLC in a state such as Wyoming or Delaware but primarily operate in another state, you need to register as a foreign LLC in the state where you do business. This means paying filing fees and ongoing annual fees in both states. For many small businesses, this can end up costing more than simply registering in your home state.

• Complex accounting: When forming in a state other than where you operate, your accounting can get more complicated. You’ll need to account for multistate tax filings and compliance, which might require more expensive accounting services. Navigating multiple tax jurisdictions can also increase the risk of errors and the potential for fines or penalties.

• Registered agent fees: States often require LLCs to have a registered agent who must reside in the state of formation. If you don’t live there, you need to hire a registered agent service, adding to your ongoing expenses.

• State taxes: Some states, such as California, charge hefty annual franchise taxes even if you’re not conducting much business there. If your LLC operates across states, you might also be required to pay income, sales, or use taxes in your home state, which can negate any tax benefits of incorporating elsewhere.

• Banking and financial barriers: Opening a business bank account or securing financing can be more difficult if you form in a state where you don’t physically operate. Banks and financial institutions might prefer to work with businesses registered in their own state or the state where you’re conducting business. This can potentially limit your options or result in higher fees.

• Unfavorable legal protections: States with fewer up-front formation costs might not offer the same level of legal protections for business owners as other states. For example, Delaware is known for its strong legal framework and business-friendly courts. This can be important for protecting your personal assets and interests during a dispute. Forming an LLC in a state with weaker protections might save money initially, but it could cost more in the event of legal issues or liability exposure.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.