The Best State to Form an LLC for Online Business

Last Updated: June 30, 2023 By TRUiC Team

Not sure where to form a limited liablity company (LLC) for your online business? There's a lot of different advice out there, but the answer is actually quite simple for the vast majority of businesses: the best state to form an LLC for an online business is your home state.

So whether you have an ecommerce, online consulting, Instagram, YouTube, or another type of online business, continue reading to see why it makes financial and legal sense to form a business in your home state.

Recommended: Once you’re ready to get started, check out our How to Form an LLC state guides, which will walk you through the process step by step.

Where to Form an LLC for an Online Business

Online business owners often ask which is the cheapest state to form an LLC in, or which is the best state to form an LLC in general. Whether the business operates out of a physical storefront or entirely online, the best state to form an LLC is almost always your home state.

Why? Because if you own an online business, you’re required to register it in the state where you’re operating it from. So, if you register an LLC in Wyoming but live in New York and run the business out of your home, you’ll then have to register it in New York as a foreign LLC. That means two registrations for the same business and more fees and paperwork.

Forming an LLC in your home state for your online business is generally the best option for the following reasons:

It;s the cheapest method
It is the easiest method
It is most likely legally required

This might sound surprising since there is a lot of advice out there saying that states like Wyoming, Nevada, and Delaware are the best options. However, unless you are based in one of these states, you are forming an LLC as a non-resident living outside of the US (which we will cover a bit later), or you are forming an LLC for certain types of real estate companies, that advice is simply wrong.

Let’s go over why your home state is the best state to form an LLC for an online business.

Cheapest State to Form an LLC for an Online Business

Yes, the cost of forming an LLC varies from state to state. Each state charges a registration fee, which ranges from $40 to $500, and some states have additional fees on top of that. However, starting an LLC in your home state will end up being the cheapest option, regardless of the fees your state charges.

The reason for this, as we mentioned, is that even if you register your online business in a state with low fees, you are still required to register it in your home state as a foreign LLC. This means you’re actually going to end up paying more fees by registering in a different state that might initially seem like the cheaper option.

Another common misconception is that forming an LLC for an online business in a state with low or no state taxes will save you money. This only applies if you actually live and operate your business in such a state, as you are required to file taxes where you make the money (in this case, your home), not where you register the business.

If you happen to live in a state with low taxes and operate your business from that state, that would be an advantage, but you can’t just avoid paying taxes in your state by forming an LLC elsewhere.

Easiest State to Form an LLC for an Online Business

The process of registering an LLC varies a bit from state to state as well. Different states require different information on the LLC Articles of Organization, and some states require LLCs to publish notices in local papers or file additional documents. There are also different annual filing requirements. So, forming an LLC is easier in some states than in others.

But, since you would still have to register your LLC in your home state, registering it in a different state with simpler filing requirements will only create more paperwork, as you’ll have to deal with submitting documents in two different states.

Protecting Your Online Business

In addition to ultimately being the cheapest and easiest option for most online businesses, forming an LLC in your home state is the best choice to avoid potential legal or regulatory issues.

States require LLCs to register if they “conduct business” in that state. The definition of conducting business can vary from state to state, but it is generally fairly broad, and operating an online business (even making phone calls or sending a business email) from within the borders of a state would qualify.

This means you will want to make sure to form an LLC for your online business in your home state in order to avoid potential fines and, perhaps even more importantly, to maintain the LLC’s corporate veil so that you don’t lose the personal liability protection that an LLC provides.

Best State for Form an LLC for Nonresidents

If you are not a US resident and want to form an LLC in the US for your online business, then you obviously don’t have a “home state” to start it in. If you operate online and don’t have a physical presence (offices, stores, employees), you can choose any state to register an LLC.

The best option for your business might not be the same as for another business, so it is a good idea to consider your specific business and personal needs and goals, consult an attorney, and take a close look at the states you are considering before starting the registration process.

For the best information on opening an LLC in the USA, use our How to Open a Company in the USA guide.

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire one of these Best LLC Services to set up your LLC (for a small fee)
Or, choose your state from the list below to start an LLC yourself:

Best State for Online Business FAQs

Do I need to form an LLC for an online business?

We recommend forming an LLC for an online business. While it isn’t legally required, there are a number of advantages of forming an LLC for an online business.

What state should I register my online business?

In most instances, you should register your online business in the state where you live and operate the business from.

Can I form an LLC in a state I don't live in?

Yes, you can form an LLC in a state you don’t live in, but we don’t recommend it in most cases. If you form an LLC in a state you don’t live in, you will likely also have to register your business as a foreign LLC in the state that you do live in.

Can an LLC change states?

Yes, an LLC can change states (a process called domestication) in many states. If that option is not available, it is possible to dissolve an LLC and form a new one in a different state. Both of these options require filing various documents and paying fees, so it is a good idea to be sure that you are forming your LLC in the best state and only change if absolutely necessary.

Can I live in one state and have a business in another?

Yes, you can live in one state and have a business in another, but it is likely that you will have to register as a foreign LLC in the state you live in if that’s where you are operating the business from.

Can an LLC do business in multiple states?

Yes, an LLC can do business in multiple states. However, it is likely that you will have to register the LLC as a foreign LLC in any state where it does business (other than in the state where it was formed).

LLC Formation Checklist
Getting a US Address for a Non-Resident Owned Business
When is the Right Time to Form an LLC?
LLC Startup Guide

Article Sources

IRS - Limited Liability Company (LLC)
https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc

SBA - Choose a Business Structure
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

IRS - About Form 5472
https://www.irs.gov/forms-pubs/about-form-5472