How to pick your state
The decision for most small businesses is simple: form in the state where you live and work. Forming in a "tax haven" state like Delaware, Wyoming, or Nevada sounds sophisticated, but for a business that operates in California, New York, or Texas, you still register as a "foreign LLC" in your operating state, pay that state's fees and taxes, and add a second set of annual filings. The Delaware shuffle only pays off in specific situations — we cover them below.
The three buckets of LLC cost
- One-time formation: Filing fee ($35–$500), operating agreement ($0 DIY to $1,500 attorney), EIN (free from IRS), publication (in NY, AZ non-exempt counties, NE) ranges $30–$2,000.
- Ongoing state fees: Annual or biennial report ($0–$500), franchise tax ($0–$11,790 depending on state and revenue), registered agent ($50–$300/yr).
- Tax compliance: Federal 1065 partnership return or Schedule C, state pass-through filings, local business licenses and sales tax registrations. Expect $400–$2,500/yr for a CPA on a basic LLC.
When Delaware actually pays off
Delaware is the gold standard for investor-backed startups for three reasons: the Court of Chancery resolves business disputes quickly using a specialized bench of judges with no juries; Delaware corporate case law is decades deeper than any other state, reducing legal uncertainty; and VCs have term sheets pre-built for Delaware entities. If you're raising a priced seed or Series A round, your lawyer will tell you to convert to (or form as) a Delaware C-corp anyway. Forming directly as a Delaware LLC skips one conversion step later.
For anything else — service business, local retail, single-member freelance LLC, rental property — Delaware costs more and delivers no benefit over your home state.
When Wyoming actually pays off
Wyoming shines for holding company structures and anonymity. Single-member LLC charging-order protection is strong, no state income tax, and managers/members aren't disclosed on public filings. Common uses:
- Holding real estate across multiple states via a parent Wyoming LLC
- Holding ownership of state-specific operating LLCs to add a layer of privacy and asset protection
- Holding intellectual property or brand assets licensed to operating entities
You still register as a foreign LLC in any state where the holding company owns real estate or conducts business, so this is more complex than forming in your home state. Worth it for asset protection purposes; not worth it to save on a $125 filing fee.
The California tax trap
California's $800/year minimum franchise tax hits every LLC that is "doing business" in California. The state interprets "doing business" broadly — having a California member, having a California office, earning California-sourced income over $500K in gross receipts, or being registered in California all trigger it. Forming an LLC in Nevada or Wyoming and then operating from a California home office does not avoid the $800.
If you're a California resident who wants to minimize LLC costs, the realistic options are: (1) accept the $800 and form in California, (2) operate as a sole proprietorship or general partnership (no $800 tax but no liability protection), or (3) form a California S-corp if tax planning makes sense. Don't try to dodge via out-of-state formation — the Franchise Tax Board finds these cases routinely.
The publication gotcha
Three states require publication of a notice of formation in local newspapers:
- New York: Two designated newspapers for 6 consecutive weeks within 120 days of formation. Manhattan: $1,600–$2,200. Brooklyn/Queens: $500–$1,200. Upstate: $300–$700. Plus $50 certificate filing.
- Arizona: One newspaper in county of principal office for 3 consecutive publications, except Maricopa and Pima counties (exempt). Total cost typically $30–$100.
- Nebraska: One legal newspaper in county of principal office for 3 consecutive weeks. $30–$100.
Miss the NY deadline and your LLC's authority to sue in New York courts is suspended until you complete publication — a serious business-continuity problem. Budget for it upfront.
Annual compliance matters more than sticker price
Three states have surprisingly cheap long-term LLCs once you're past the filing year:
- Pennsylvania: $125 to form, then $7 decennial report every 10 years. Effective annualized state cost is ~$13/yr.
- Ohio: $99 to form, no annual report, no annual franchise tax for LLCs (CAT only kicks in at $150K gross receipts).
- New Mexico and Missouri: No annual report and no franchise tax for LLCs. Once formed, you basically have no state filings to worry about.
Action plan for forming correctly
- Decide state (usually home state).
- Check name availability on your state's SOS website.
- File Articles of Organization (or Certificate of Formation) — direct through SOS for lowest cost.
- Draft an operating agreement (even single-member — $0 DIY template or $500–$1,500 attorney).
- Get EIN from IRS (free, 5 minutes online).
- Open a business bank account (bring articles, operating agreement, EIN letter).
- Register for state and local taxes (sales tax permit, employer withholding if hiring).
- File NY publication within 120 days (if applicable).
- Set calendar reminders for annual report due date.