In this article, we will take a look at the 10 best states to start an LLC. If you want to skip our detailed analysis of limited liability companies, you can go directly to 5 Best States to Start an LLC.
According to the official definition by the Internal Revenue Service, a limited liability company is a form of business structure allowing entities and business owners to enjoy limited liability protection along with flexible tax policies. Owners of limited liability companies are referred to as "members." A limited liability company is easy to set up and deals with less legal scrutiny regarding annual reporting and taxation. You can check out some states with the lowest business tax rates. Depending on the number of members, the LLC may be considered a sole proprietorship, a partnership, or a corporation and, therefore, will have a different set of state laws applying to the entity.
LegalZoom: LLCs' Go To Option
On April 10, the US Chamber of Commerce reported that there are almost 33.2 million small businesses in the United States, accounting for 99.9% of all businesses in the United States. You can also check out the best states in America to do business. A limited liability corporation is a form of a small private entity that accounts for several small businesses in the United States. To do business efficiently, limited liability corporations require unmatched legal, accounting, and financial services, to name a few.
LegalZoom.com, Inc. (NASDAQ:LZ) is a leading company that provides legal services to businesses, including limited liability companies. On August 3, LegalZoom.com, Inc. (NASDAQ:LZ) announced the launch of "LZ Books" for small business owners. LZ Books offers customers a straightforward accounting and bookkeeping solution, specifically for businesses run by a single owner. LZ books helps businesses keep track of their records, enables them to send unlimited custom-branded proposals, and automates their payment processes. Customers with an LZ tax plan can also transfer their data from LZ books to an LZ tax expert, maximizing their tax outcome.
On September 28, LegalZoom.com, Inc. (NASDAQ:LZ) launched the beta version of Doc Assist. Doc Assist is a tool that summarizes legal documents for businesses using generative artificial intelligence. Companies can upload a document, and the tool will extract crucial details from the document and prompt important questions based on the nature and type of the document. The company's commitment to offer hassle-free solutions to small businesses is incomparable.
Prominent Names Supporting Small Businesses
While LegalZoom.com, Inc. (NASDAQ:LZ) is a popular name among small businesses and limited liability companies, a few other companies offer services that may serve limited liability companies. These include Xero Limited (OTC:XROLF) and Intuit Inc. (NASDAQ:INTU).
Xero Limited (OTC:XROLF) is a technology company that provides accounting services. Based in New Zealand, the company extends its services to serve small to medium-sized businesses in Australia, the United Kingdom, and the United States. On October 12, Xero Limited (OTC:XROLF) released its new generative artificial intelligence-driven search system. The new system allows customers to find answers to their questions instantaneously. The company partnered with Coveo and uses generative artificial intelligence to display the answers on Xero Central. Upon entering a search query, customers will receive an answer to their question and be provided with relevant content and articles.
Intuit Inc. (NASDAQ:INTU) is a business software company based in the United States. On September 13, the company announced the launch of QuickBooks Money. QuickBooks Money is specifically designed for small businesses. The new platform is an all-in-one payment and banking system with no monthly fee required. Using QuickBooks Money, small business owners can exercise complete control over their finances from anywhere. To elaborate on the platform, David Talach, senior vice president of the QuickBooks Monkey platform at Intuit Inc. (NASDAQ:INTU), stated:
"QuickBooks Money represents an incredible opportunity to expand the reach of our fintech platform and give more small businesses access to powerful cash flow management tools. We believe this is a true front door to the future of small business success."
Intuit Inc. (NASDAQ:INTU) is popular among small business owners. On August 24, Intuit Inc. (NASDAQ:INTU) reported earnings for the fiscal fourth quarter of 2023. The company reported earnings per share of $1.65 and outperformed EPS estimates by $0.21. The company reported a revenue of $2.71 billion during the quarter, ahead of market consensus by $69.55 million and up 12.34% year over year.
Sourcing services from companies like the ones mentioned above can significantly enhance business efficiency. However, supportive tax laws and a friendly regulatory environment are also factors to determine when considering to form a limited liability company. With that, let's look at the 1o best states to start an LLC.
10 Best States to Start an LLC
10 Best States to Start an LLC
Our Methodology
For our title, 10 best states to start an LLC, we based our ranking on the state-wise business tax climate score by the Tax Foundation and the state-wise cumulative 10-year job growth rate between 2012 and 2022 by the Bureau of Economic Analysis. Our primary metric was the state-wise business tax climate score, supported by our secondary metric, the cumulative 10-year job growth rate.
We included these two metrics to depict the state-wise economic outlook to our readers accurately. For business owners, a state's economic conditions are crucial to a business's success. Additionally, our list consists of states that tax LLCs as pass-through entities, meaning that no federal or state taxes are levied directly on the entity. However, LLC members or owners pay a certain income tax on the earnings from the LLC. The business climate index accurately represents the different types of taxes that may impact an LLC member. The score comprises income tax, sales tax, corporate tax, property tax, and unemployment insurance tax. The business tax climate score is calculated across the five tax categories to reach a cumulated score, with 1 being the lowest and 1o being the highest.
We sifted through the business tax climate score to identify and shortlist our top 20 states. We picked the top 10 with the highest cumulative growth rate. We also mentioned the formation costs for an LLC in each of the states listed below to make the list more comprehensive and well-rounded. The list is in ascending order of the business tax climate score, primarily, and cumulative 10-year job growth rates, secondarily.
It is important to note that starting an LLC in your home state will save you tremendous costs as you only have to register your LLC once. However, if you plan to set up your LLC in another state, you must register it as a foreign LLC in your home state. Therefore, the reporting and filing costs will increase, as you will pay two LLC filing fees.
10 Best States to Start an LLC
10. Virginia
Business Tax Climate Score: 5.07
Cumulative 10 Year Job Growth Rate: 15.3%
According to our methodology, Virginia is among the best states to form a limited liability company with formation costs of $103. Virginia is highly business-friendly and offers certain tax advantages to LLC members. LLC members in Virginia must pay the state income tax on their returns from the LLC along with a self employment tax.
LegalZoom.com, Inc. (NASDAQ:LZ), Xero Limited (OTC:XROLF) and Intuit Inc. (NASDAQ:INTU) are some of the top companies offering bespoke services for small businesses and limited liability companies.
9. Oregon
Business Tax Climate Score: 5.14
Cumulative 10 Year Job Growth Rate: 19.7%
Oregon is among the best states to start a limited liability company. Limited liability companies in Oregon are taxed as pass-through entities. LLC members must pay the federal income tax on their returns or individual profits from the LLC. The tax rate lies somewhere between 4.75% to 9.90% based on income. The formation costs of an LLC in Oregon amount to $100. The low filing fee makes Oregon an attractive option.
8. Colorado
Business Tax Climate Score: 5.17
Cumulative 10 Year Job Growth Rate: 28.3%
According to our methodology, Colorado is one of the best states to form a limited liability company. The state boasts a business-friendly infrastructure and the formation costs only amount to $50. LLC members must pay the flat income tax rate of 4.63% on their earnings from the LLC. This tax policy prevents members from getting double-taxed.
7. Arizona
Business Tax Climate Score: 5.26
Cumulative 10 Year Job Growth Rate: 30.1%
Arizona is one of the best states to start an LLC. The formation cost of a limited liability company in Arizona is only $50. Forming a limited liability company in Arizona is relatively easy and requires less paperwork. By default, limited liability companies in Arizona are taxed as pass-through entities. Therefore, the entity itself does not pay any taxes. LLC members, however, must pay taxes at a rate of 15.3%. If the LLC holds the status of a C-corp, LLC members are taxed at 4.9% per annum.
6. Delaware
Business Tax Climate Score: 5.32
Cumulative 10 Year Job Growth Rate: 21.9%
According to our methodology, Delaware is one of the best states to start a limited liability company. The state enjoys business and tax-friendly policies. However, the filing and reporting requirements may be a little stringent for an LLC. Limited liability companies in Delaware are taxed as pass-through entities and therefore, the entity does not have to pay any taxes directly. However, LLC members must pay taxes against any earnings from the LLC. It costs only $90 to form a limited liability company in Delaware.
LegalZoom.com, Inc. (NASDAQ:LZ), Xero Limited (OTC:XROLF) and Intuit Inc. (NASDAQ:INTU) are popular choices for legal and accounting services among small business owners.
