Simply put, do not form your company in Nevada. They were a great choice 10 years ago, but have consistently raised fees to the point of being uncompetitive.
Rather, consider a Wyoming LLC or New Mexico LLC. Wyoming offers privacy and similar asset protection at a much lower price. New Mexico does not have the same asset protection, but they do allow anonymous LLCs and have no annual fee. Each of these options will save you hundreds of dollars per year.
A common question is in what state you should form your LLC. The answer will depend upon the purpose of the LLC. If you are forming a location independent company, such as a holding company, e-commerce company, etc. then you have latitude in where to set everything up. If you have an operational company, e.g. W2 employees and an office, then you will need to register in that state as you are doing business there.
Generally speaking, every state allows you to enjoy the traditional benefits that a limited liability company offers. However, there are a few differences among the top states that market themselves as the best LLC destinations. Here, we’ll compare the benefits of forming your LLC in both Florida and Nevada to help you determine which state can offer the most to your business. We will also provide information and links to pages which discuss other popular states, e.g. Wyoming, New Mexico and Delaware.
Benefits of a Nevada LLC
Nevada LLCs provide several benefits over Florida, e.g. they allow anonymous LLCs and provide better asset protection. In Nevada, members and managers are never made public. This keeps your personal information off the internet and away from creditors. Also, they provide stronger charging order protection, especially for single member LLC. Their corporations also have no corporate income tax versus Florida's 5.5% corporate tax rate. These are the reasons people choose to form a holding company in Nevada. However, as noted above, similar benefits can be obtained for less via Wyoming or New Mexico.
To be clear, Nevada enjoys the same basic LLC benefits as the state of Florida, including personal liability protection, pass-through taxation, and management flexibility. However, if you are considering forming your LLC in Nevada, keep the following aspects in mind:
Additional Costs & Fees
Nevada tends to have higher incorporation and formation fees compared to other states. Additionally, if your business is ever involved in legal action, you may require legal assistance in addition to that of your in-state attorney.
Dual State Registration
If your business is operating in a single state, choosing to form elsewhere will require registering in both states. This includes ongoing filing for annual reports with accompanying fees for both states to remain active.
Added Registered Agent Fees
Similar to registering in both states, you will need to maintain registered agents in both, as well. An additional registered agent will mean more costs and fees to remain in good standing with both states.
Benefits of a Florida LLC
A Florida LLC will offer your company many of the traditional benefits and more. For starters, LLCs are considered relatively easy to set up in comparison to an entity like a corporation, which tends to be more complicated. In comparison to Nevada, there a number of taxes that Florida businesses do not have to worry about, such as:
- Franchise Tax
- Gift Tax
- Estate Tax
- Corporation Shares Tax
- Unitary Tax
Simple Management Structure
Compared to other entity types, Florida LLCs are simple to form and offer flexibility in management. There are no restrictions on the number of members your LLC can have. In addition, Florida allows for single-member LLCs, which is not an available option in most other states. Florida also allows for corporations or foreign individuals to own an LLC. The state of Florida offers the option of having your LLC managed by a designated manager that does not have to be a member of the LLC.
Pass-Through Classification
Limited liability companies enjoy a pass-through classification for taxes. This means that any profits of the company are passed on directly to the members. The members then report profits and losses on their own personal tax return. Additionally, LLC profits are not considered earned income and therefore not subject to self-employment tax. This method is in contrast to a corporation, in which profits are taxed as business income and then again as personal income.
Personal Liability Protection
LLCs offer their members personal liability protection from any debts incurred by the business. In most cases, member liability is limited to the amount initially invested into the company. Any member assets that are separate from that of the LLC, such as personal property or bank accounts, are protected from creditors.
If you form a single-member LLC in Florida, however, be aware that the Florida Supreme Court has defined a more limited asset protection for the entity. In a 2010 ruling, the court found that the owner’s assets could be seized to satisfy an unpaid creditor. With this in mind, you may want to consider adding an additional member to your Florida LLC to increase your personal asset protection.