I keep seeing articles like "Wyoming is the best state to form an LLC" and "form in New Mexico for $50!" and I'm wondering if people are missing the point. The filing fee is a one-time thing. What about the annual report fees, franchise taxes, registered agent costs, and the fact that you might actually owe state taxes where you live and operate? I feel like choosing a state purely on the formation fee is like choosing a car based on the price of the first oil change. Am I overthinking this, or is this a common trap?
LLC Costs
The cheapest state to form an llc isn't necessarily the cheapest place to run one
oh you are 100% not overthinking it. I see this all the time. People form in Delaware because "that's what big companies do" and then are shocked when they get hit with the $300 annual franchise tax and have to pay a registered agent. If you're a solo consultant living in Ohio, a Delaware LLC just means extra paperwork and fees for zero benefit.
Counterpoint: if you're planning to raise VC money, Delaware is basically the default for a reason. But for a small biz? Hard agree, total waste of money.
Yeah, that's fair. I should have specified this is for like, a normal small business or freelancer, not a startup looking for investors. The "Delaware for everyone" advice is what grinds my gears. Also, don't forget the foreign qualification fees if you're operating in your home state anyway.
This is why I just formed in my home state. The annual report here is like $25 and takes 5 minutes. The "cheapest state to form" articles are clickbait.
Wait, are you saying I shouldn't have formed my LLC in Wyoming even though I've never set foot in Wyoming? ...asking for a friend who is now realizing they might need to file a foreign LLC in their actual state.
Honestly the "cheapest" state for me ended up being my home state once I factored in the registered agent fee I would have needed for an out-of-state entity. Plus, my local bank looked at me like I had two heads when I handed them Wyoming formation docs.
People also forget that a lot of those $50 states have ridiculously high annual report fees or franchise taxes. Nevada is like $350 a year minimum, and California is $800 regardless of income. That $50 filing fee is a drop in the bucket.
Exactly. It's the ongoing maintenance that gets you. And don't even get me started on the people who form in Wyoming but live in California and think they don't have to pay California taxes. The FTB will find you.
I think people just like the idea of "asset protection" or "privacy" that Wyoming advertises., But for the average small business, the illusion of privacy isn't worth the extra headache.