An LLC (limited liability company) is one of several legal structures for a new business. It combines elements of a business partnership and a corporation. Perhaps the main reason for forming an LLC is to help protect your personal assets in case your business faces lawsuits or bankruptcy. Each state has its own laws about creating an LLC. Plus, each state has its own business-friendly or business-unfriendly environment, complete with favorable or unfavorable tax rates. An LLC also offers tax benefits. Learn which states are the best to form an LLC—and which states are the worst.
Best States To Form an LLC
So what makes the following 10 states the best states to form an LLC? It boils down to various costs associated with doing business in a state. In assessing each state, The Balance looked at individual income, sales, and property tax rates, as well as the legal environment for businesses and the LLC fees. All tax information below is from the Tax Foundation, legal rankings are from the U.S. Chamber’s Insitute for Legal Reform, and LLC fee information comes from LLC University.
Alaska
Range for individual income tax rates: NoneAverage combined state and local sales tax rate: 1.76% (no state sales tax)Effective property tax rate for homes: 1.02%State ranking for business-friendly legal environment: 5LLC filing fee: $250LLC annual fee: $100
Alaska earns credit for its lack of an individual income tax and a state sales tax.
Delaware
Range for individual income tax rates: 2.2% to 6.6%Combined sales tax rate and local sales tax rate: No state or local sales taxesEffective property tax rate for homes: 0.59%State ranking for business-friendly legal environment: 1LLC filing fee: $90LLC annual fee: $300
Some experts point to Delaware as the best state for setting up an LLC due to its business-friendly legal system. Nellie Akalp, co-founder and CEO of CorpNet.com, which helps with the filing of business documents, told The Balance via email that “many business owners choose to register in Delaware due to their favorable court system for entrepreneurs. Should a lawsuit come up, cases tend to resolve quicker than in other states.” A different perspective comes from Sharon Winsmith, owner and CEO of Winsmith Tax, a tax advisory firm for businesses. “Many people make the mistake of thinking you can avoid tax or get preferential laws by setting up the LLC in a specific state like Delaware,” she said in an email. “However, for active businesses, that is not the case. You can be sued in any state where you do business, and the tax laws apply based on where you operate the business, not based on where you set up the entity.”
Florida
Range for individual income tax rates: NoneCombined state sales tax rate and average local sales tax rate: 7.01%Effective property tax rate for homes: 0.91%State ranking for business-friendly legal environment: 46LLC filing fee: $125LLC annual fee: $138.75
The Sunshine State shines in large part due to the lack of an individual income tax.
Indiana
Range for individual income tax rates: 3.23% flat rateCombined state sales tax rate and average local sales tax rate: 7%Effective property tax rate for homes: 0.84%State ranking for business-friendly legal environment: 31LLC filing fee: $95LLC annual fee: $30
Indiana’s low rate for individual income taxes gives it an edge, as do the low LLC fees. However, a big drawback is the high sales tax rate.
Montana
Range for individual income tax rates: 1% to 6.75%Combined state sales tax rate and average local sales tax rate: NoneEffective property tax rate for homes: 0.75%State ranking for business-friendly legal environment: 7LLC filing fee: $70LLC annual fee: $20
Big Sky Country excels due to its lack of sales taxes and its business-friendly legal environment. Its low LLC fees don’t hurt, either.
Nevada
Range for individual income tax rates: NoneCombined state sales tax rate and average local sales tax rate: 8.23%Effective property tax rate for homes: 0.60%State ranking for business-friendly legal environment: 29LLC filing fee: $425LLC annual fee: $350
The high LLC fees in Nevada are offset by the lack of an individual income tax.
New Hampshire
Range for individual income tax rates: 5% (applies only to income from interest and dividends)Combined state sales tax rate and average local sales tax rate: NoneEffective property tax rate for homes: 1.96%State ranking for business-friendly legal environment: 18LLC filing fee: $100LLC annual fee: $100
New Hampshire’s biggest draws are its treatment of individual income taxes, its lack of sales taxes, and its low LLC fees.
North Carolina
Range for individual income tax rates: 4.99% flat rateCombined state sales tax rate and average local sales tax rate: 6.98%Effective property tax rate for homes: 0.82%State ranking for business-friendly legal environment: 16LLC filing fee: $125LLC annual fee: $200
A relatively low individual income tax rate and a decent legal environment for businesses give North Carolina an LLC advantage.
South Dakota
Range for individual income tax rates: NoneCombined state sales tax rate and average local sales tax rate: 6.4%Effective property tax rate for homes: 1.18%State ranking for business-friendly legal environment: 10LLC filing fee: $150LLC annual fee: $50
A lack of corporate tax and individual income tax put South Dakota in good standing, as well as its low LLC fees.
Wyoming
Range for individual income tax rates: NoneCombined state sales tax rate and average local sales tax rate: 5.22%Effective property tax rate for homes: 0.56%State ranking for business-friendly legal environment: 4LLC filing fee: $100LLC annual fee: $60 (minimum)
Wyoming gets high marks for its lack of an individual income tax, its business-friendly legal system, and its low LLC fees Jake Hill, founder and CEO of debt-relief company DebtHammer (which is structured as an LLC), offers a cautionary note about setting up an LLC in Wyoming, though. “While certain states have better tax advantages, it’s always best to form an LLC in the state that you live in and will be conducting business in,” Hill said via email. “Many people make the mistake of forming an LLC in a state like Wyoming, which has long been considered one of the best states for an LLC, tax-wise, but then conducting business or doing transactions in a different state that they live in.” “If your business is making money in another state, you’ll have to pay taxes on that, making forming your LLC in a separate state like Wyoming pointless,” Hill said.
Worst States To Form an LLC
The following five worst states for forming an LLC also are among the worst in the country for taxes. All tax information below is from the Tax Foundation, legal rankings are from the U.S. Chamber’s Insitute for Legal Reform, and LLC fee information comes from LLC University.
California
Range for individual income tax rates: 1% to 13.3%Combined state sales tax rate and average local sales tax rate: 8.82%Effective property tax rate for homes: 0.73%State ranking for business-friendly legal environment: 48LLC filing fee: Normally $70 but lowered to $0 until June 2023LLC annual fee: $820
California suffers from a heavy tax burden, with the top end of the individual income tax rate sitting at 13.3% and the combined sales tax rate at 8.82%. At 13.3%, California has the highest individual state income tax rate in the country.
Hawaii
Range for individual income tax rates: 1.4% to 11%Combined state sales tax rate and average local sales tax rate: 4.44%Effective property tax rate for homes: 0.31%State ranking for business-friendly legal environment: 15LLC filing fee: $50LLC annual fee: $15
Hawaii’s LLC fees are incredibly low, but it’s no paradise when it comes to individual income tax rates.
Illinois
Range for individual income tax rates: 4.95% flat rateCombined state sales tax rate and average local sales tax rate: 8.81%Effective property tax rate for homes: 2.05%State ranking for business-friendly legal environment: 50LLC filing fee: $150LLC annual fee: $75
While Illinois has a flat individual tax rate of 4.95%, its high sales tax and property tax rates make the Land of Lincoln less desirable for new LLCs. On top of that, it’s the least business-friendly state when it comes to legal matters.
Iowa
Range for individual income tax rates: 0.33% to 8.53%Combined state sales tax rate and average local sales tax rate: 6.94%Effective property tax rate for homes: 1.5%State ranking for business-friendly legal environment: 23LLC filing fee: $50LLC annual fee: $45
Iowa boasts low LLC fees, but its tax rates aren’t LLC-friendly.
Minnesota
Range for individual income tax rates: 5.3% to 9.85%Combined state sales tax rate and average local sales tax rate: 7.49%Effective property tax rate for homes: 1.1%State ranking for business-friendly legal environment: 20LLC filing fee: $155LLC annual fee: $0
Minnesota might freeze out some LLCs due to its especially high income tax and sales tax rates. Its LLC fees are a warm welcome, though.
The Bottom Line
When figuring out where to register an LLC, no single consideration should drive your decision. Rather, look at factors such as where you want to live and work, as well as a state’s taxes, legal system, and LLC fees. “Each state is individual in their fees and rules for all of these factors, so it can get complicated trying to narrow it down,” Akalp said.
