When trying to find the best states to form a Limited Liability Company (LLC), you must consider many important factors, such as the cost of forming an LLC, the ease of forming an LLC, the processing time, the level of ongoing compliance, and the tax rates of each particular state.
I’ve investigated and compared each state using five different factors to rate them and determine the best states in which to form an LLC.
Here’s the best state to form your LLC:
1. Colorado (Best Overall)
After evaluating all 50 states and the District of Columbia according to their ease of startup, start-up costs, ongoing compliance, and income tax rates, it is clear that the state of Colorado is the best state in which to start an LLC.
Pros
There were two reasons I chose Colorado as the best state to form your LLC in.
The first is that Colorado has the third lowest start-up costs for LLC formation in the country at $85 in filing fees. Compared with the national average of $346.17 in start-up fees, it’s easy to see the appeal. The paperwork itself is simple (no complicated questions to answer) and filing is made easy with an intuitive online filing system. Other states with lower start-up costs either have complex or confusing paperwork to file or have higher tax rates, making them less than ideal.
The second is that the state of Colorado has no personal or corporate tax, making it very appealing to many business owners. Only six other states have no corporate or personal income tax, so this is a rare benefit for an American business to have. And compared with those states, Colorado still has the overall cheapest start-up costs.
The third is that Colorado has also undergone a population boom that has created a diverse and widely available labor force and customer base, giving you no shortage of employees or customers. Cities like Denver have also become hubs for international start-ups and the state’s economy has seen rapid growth over the last decade with a budget surplus of $5.29 billion in March of 2021.
Cons
Colorado’s only real flaw is in the processing period. You can expect to wait up to 20 days for your documents to be approved in Colorado. However, there are definitely states that take longer. States like New York can have up to a six-week waiting period, so really Colorado’s wait time isn’t that bad.
Overall
Although there are states with faster processing times and some with lower start-up costs, Colorado delivers the best overall value to the aspiring business owner. With only $85 in filing fees to start your business and no personal or corporate tax combined with the economic boom Colorado has been experiencing for the last decade, it’s easy to see why Colorado is the best state for forming an LLC.
For more information on how to start a Limited Liability Company (LLC) in Colorado, click here.
2. Delaware (Best Court System)
Delaware ranks #2 on my list because, despite having an extremely business-friendly court system, their tax rates and start-up costs are much higher than Colorado.
Pros
Delaware is often considered incredibly business-friendly because it has a specific court system for business-related affairs. Known as the Chancery Court, this system is dedicated to business-related affairs and the judges are experts in business law. Delaware’s Chancery Court also has an outstanding reputation for fairness when it comes to business lawsuits, and cases are resolved faster than the average state.
Delaware also has a relatively intuitive online system and filing your LLC paperwork is very easy. You can also expect a processing time of 1–3 weeks, so you may get your documents approved faster than in Colorado.
Cons
Delaware’s main drawbacks are the moderately high tax rate and their inclusion of a franchise tax. Delaware’s annual franchise tax is a flat tax of $300 and must be paid by every LLC formed in the state of Delaware each year, no matter their income or business activity. Delaware’s personal income tax can also go up to 6.6% and corporate taxes are a flat rate of 8.7% (one of the highest in the country).
Delaware’s LLC start-up costs ($465) are also over five times higher than Colorado’s.
Overall
Delaware's reputation for being business-friendly is largely supported by the Chancery Court. However, If you consider Delware’s Chancery Court to be the main draw, it’s probably a good idea for you to find a different career path because no one should plan on that much legal trouble.
The high tax rates and moderately high start-up costs make it difficult to rank it higher than Colorado. You will likely get your LLC documents approved faster than Colorado, but considering how much higher the costs are, I don’t think it’s worth it.
For more information on forming an LLC in Delaware, click here.
3. Wyoming (Most Flexible Compliance)
Wyoming has a reputation for flexible business regulations, but it comes in at #3 on this list because it still isn’t the cheapest despite its lack of personal or corporate tax.
Pros
Wyoming has flexible compliance regulations and doesn’t even require you to visit the state, meaning you can file all your paperwork for a foreign LLC based in Wyoming without leaving the comfort of your own home, or even your pajamas.
They also don’t require more information or hassle than the average state. Wyoming’s LLC paperwork is fairly simple to file and it doesn’t require answering any bizarre questions or supplying large quantities of information. All you’ll need when filing your Wyoming LLC paperwork is the mailing and office address for your LLC, your registered agent’s name and address, and the signature and contact info of your LLC’s organizer.
Wyoming is also one of only seven states that doesn’t impose any type or personal or corporate tax, so it’s easy to see why many business owners choose to set up an LLC in Wyoming.
Cons
Wyoming’s waiting period for LLC approval can take over two weeks, and they require much more than Colorado’s $85 in start-up costs. Business formation in the state of Wyoming costs $202 in filing fees. They also have a waiting period of up to 15 days.
Overall
Wyoming may have some of the most relaxed regulations for business formation in the country, but other states are still cheaper or have faster processing. Considering it’s only five extra days in Colorado, it’s worth it for the savings.
Although you won’t be subject to any personal or corporate income tax, Wyoming still has annual fee obligations for your small business.
For more information on how to start an LLC in Wyoming, click here.
4. Nevada (Business-friendly)
Nevada is number four on my list because although business owners won’t have to pay taxes here, the LLC paperwork is complicated and they have higher levels of ongoing compliance.
Pros
Nevada doesn’t impose corporate, personal, or even franchise taxes and it has extremely low annual fees. Nevada also doesn’t require you to hold meetings or adopt an Operating Agreement, so there aren’t many roadblocks here. You also aren’t required by the state of Nevada to disclose any of your personal information when it comes to public filings, allowing you to remain anonymous and fully enjoy the privacy protection of forming an LLC.
Cons
Nevada’s LLC start-up costs are over five times higher than Colorado’s $85. Business owners looking to form LLCs in the state of Nevada pay $600 in filing fees. They also require more information on your LLC formation documents than most states. Nevada also requires LLCs to submit a list of all members, officers, and directors (even if you don’t have an operating agreement) as part of their annual reporting process, and they have an annual filing fee of $150.
Overall
Nevada’s biggest appeal is the relaxed business regulations and lack of personal or corporate income tax. When you factor in their fast processing time for online and mail-in filings, it’s worth considering. However, Nevada’s start-up costs are significantly higher than Colorado, Delaware, and Wyoming at a whopping $600.
For more information on how to start an LLC in the state of Nevada, click here.
I haven’t rated the next 47 states and territories because who really wants to start their LLC in the 11th best state? But here are some of the category winners and losers if you’re looking for something specific.
Honorable Mentions
Just because Colorado is the overall best state to form a Limited Liability Company (LLC), it doesn’t mean it’s the cheapest, fastest, or easiest. Those awards were taken by some of their neighboring states.
The Cheapest State to Form an LLC In
The cheapest state for forming an LLC is a tie between Kentucky and New Mexico. LLC start-up costs in these two states are only $70 in terms of filing fees. If you choose to act as your own registered agent and file all your own paperwork, business formation in these two states can be extremely inexpensive.
Hawaii is the next cheapest state to form your LLC in, with only $75 in filing fees to get your formation documents processed. Colorado, Iowa, and Arizona round out the list of the cheapest states to form your LLC in with start-up costs of $85, $90, and $95 respectively.
The Most Expensive State to Form an LLC In
If start-up cost is your main concern, then states like Tennessee and Massachusetts are not for you. Tennessee can have start-up costs of over $6,000 depending on how many members are in your LLC. Massachusetts also has start-up fees that exceed $1,000, so these are not cheap states to form businesses in.
LLCs in Delaware ($465), Nevada ($600), or Washington DC ($570) have high start-up costs, making those states ones to avoid if you're looking at keeping your start-up costs low.
The Easiest State to Form an LLC In
Another factor to consider when ranking the best states to form an LLC in is how easy or difficult the LLC formation process is for that state.
Colorado and Delaware are by far the easiest states to form your LLC in. Colorado has a simple and easy-to-use online filing system and Delaware allows filing via mail or fax. Both states also have short and simple Articles of Organization forms, making the overall business formation process simple and easy.
New Mexico, North Dakota, and Missouri are fairly simple and straightforward as well, although not as easy as Colorado. If keeping the overall business formation process simple and easy is your preference, then these are the states for you.
The Hardest State to Form an LLC In
In contrast, these states have the most complex business formation forms and filing systems in the country.
California is the hardest state for forming an LLC because the state requires you to submit additional paperwork within 90 days of formation for their biennial report system. California biennial reports must include information such as the names and addresses of any LLC members, managers, or officers. Compared with Colorado, their system for forming an LLC is much more complex.
Georgia requires you to submit an additional form called a Transmittal Information Form for your Georgia Limited Liability Company if you prefer to file by mail. This form must include your LLC’s email address in addition to copies of the information already listed on your Articles of Organization.
Louisiana’s Articles of Organization are complex and require additional forms if you choose to file in person or by mail. Nebraska lacks official forms and requires you to draft your own business formation documents, often requiring legal advice to get it right. The state of New York requires you to publish your LLC formation in two approved newspapers within 120 days of filing your Articles of Organization.
The State with the Fastest Approval Time
Low start-up costs and simple paperwork are good, but if you can avoid spending up to six weeks waiting on approval and get a head start on your business that’s even better. The following states have the fastest waiting periods for forming an LLC in the country.
Maine and Idaho require you to pay an extra $100 for same-day or immediate processing, but if you’re eager to get your small business up and running then it’s worth the investment. However, Missouri, South Carolina, and Kansas all offer processing times of 24 hours or less for online filings, which is fantastic for the eager business owner.
The State with the Slowest Approval Time
The state of New York has one of the longest processing times for LLC formation with a waiting period of 6–7 weeks. Combined with the publication requirement previously mentioned, this can delay the start of your business.
Delaware, California, Colorado, and Arizona have approval times that are half as long but can still leave you waiting for over two weeks.
The State with the Least Ongoing Compliance
Ongoing legal compliance refers to things like annual or biennial reports and any other paperwork or regulations your LLC will be required to follow or file on a regular basis. These additional procedures can be stressful and add extra layers of complexity to running your business, so ranking each state by its ongoing compliance was crucial for determining which state is the best to form an LLC in.
Arizona, Missouri, and Ohio don’t require LLCs to file annual reports, so they tie for the state with the least ongoing compliance.
The state of New Mexico doesn’t require your business to file annual reports either, but it does require LLCs to file a similar document called an Income and Information Return for Pass-Through Entities, but this document is relatively simple to fill in. The state of Iowa only requires a biennial report and the form itself isn’t very complex, and you’ll receive a reminder from the Secretary of State the month before it’s due.
The State with the Most Ongoing Compliance
Alaska requires an Initial Report to be filed within six months of your LLC formation, followed by a Biennial Report due every two years thereafter. The state does not offer reminders for your filing date, so that’s something you’ll have to track yourself, so it’s the state with the most ongoing compliance.
The state of Alabama requires your LLC to keep a collection of legal and business documents readily available for inspection. Alabama also has a specific tax that businesses need to pay called a Business Privilege Tax. California requires LLCs to file a Statement of Information within 90 days of their Articles of Organization being approved and every two years thereafter.
Louisiana has location-specific filing requirements for your LLC’s Initial Report, which can make the business formation process difficult or confusing if you’re from out of state.
New York requires your LLC to pay annual fees in addition to the aforementioned publication requirement.
The State with the Lowest Income Tax Rate
We all have to pay taxes, which is why income taxes are one of the most important long term considerations for your business. Considering that LLCs are typically exempt from federal taxes, the state income taxes businesses are subject to are one of the most important factors to consider when figuring out which state is the best to form an LLC in.
Some states don’t impose a personal income tax but still have a corporate income tax that businesses must pay, but Colorado, Montana, Nevada, Oregon, South Dakota, Washington, Wyoming have absolutely no personal or corporate income taxes. This makes these seven states very appealing to small and large businesses of any type, but even more so to LLCs and it means they tie for the state with the lowest income tax rates.
The State with the Highest Income Tax Rate
Conversely, Pennsylvania, New Jersey, Illinois, Iowa, and Maine have some of the highest rates in the country, making them less appealing for businesses seeking to lower their tax expenses. New Jersey is the state with the highest income tax rate, with a corporate income tax rate of 11.5%.
Pennsylvania has the second highest corporate income tax rate of 9.99%. Illinois comes in a close third with 9.5%. Iowa’s upper tax brackets come in at 9.8%, making them higher than Illinois in some cases. The state of Maine also has a high corporate tax rate, with a range from 3.5% to 8.93% for businesses.
The only silver lining in these states is that the personal income tax rates are much lower, but that’s hardly an upside if you’re running a small business.
LLC Start-up Requirements by State
| State | Start-up Cost | Ease | Processing Time | Ongoing Compliance | Income Tax Rates |
| Alabama LLC | $278 | Medium/Hard | Differs by county, but some counties as little as 3 days with expedited processing. | Hard | Personal Tax Rate: 2%–5% Corporate Tax Rate Tax Rate: 6.5% |
| AlaskaLLC | $425 | Medium/Hard | 10–15 days | Hard | Personal Income Tax: 0% Corporate Tax Rate Tax Rate: 0%–9.4% |
| ArizonaLLC | $95 | Medium/Hard | 15–17 days, Also offers expedited processing | Easy | Personal Tax Rate: 2.59%–4.5% Corporate Tax Rate Tax Rate: 4.9% |
| ArkansasLLC | $217.50 | Medium | 48 hours | Medium | Personal Tax Rate: 2%–5.9% Corporate Tax Rate Tax Rate: 1%–3% |
| CaliforniaLLC | $100 | Hard | 15–20 days | Hard | Personal Tax Rate: 1%–12.3% Corporate Tax Rate: 8.84% |
| ColoradoLLC | $85 | Easy | 20 days | Medium | Personal Tax Rate: None Corporate Tax Rate: None |
| ConnecticutLLC | $200 | Medium | 7–10 days | Medium | Personal Tax Rate: 3%–6.99% Corporate Tax Rate: 7.50% |
| DCLLC | $570 | Medium | 5–7 days online, 3 weeks by mail | Medium | Personal Tax Rate: 4%$85,025 plus: 8.95% Corporate Tax Rate: 8.25% |
| DelawareLLC | $465 | Easy | 1–3 weeks | Medium | Personal Tax Rate: 2.2%–6.60% Corporate Tax Rate: 8.7% |
| FloridaLLC | $298.75 | Medium | 5–20 days | Medium | Personal Tax Rate: $0 Corporate Tax Rate: 4.458% |
| GeorgiaLLC | $175 | Hard | 5–7 days online, 2 weeks by mail | Medium | Personal Tax Rate: 1%–5.35% Corporate Tax Rate: 4.55% |
| HawaiiLLC | $75 | Medium | 3–5 days online, 7–14 by mail | Medium | Personal Tax Rate: 1.4%–11% Corporate Tax Rate: 4.4%–6.4% |
| IdahoLLC | $120 | Medium | 1–2 weeks, same day processing for $100 | Medium | Personal Tax Rate: 1%–6.5% Corporate Tax Rate:6.5% |
| IllinoisLLC | $250 | Medium | 10–15 days | Medium | Personal Tax Rate: 4.95% Corporate Tax Rate: 9.50% |
| IndianaLLC | $152 | Medium | 1–5 days | Easy/Medium | Personal Tax Rate: 3.23% Corporate Tax Rate: 5.25% |
| IowaLLC | $90 | Medium | 48 hours online, 3–4 weeks by mail | Easy | Personal Tax Rate: 0.33%–6.5% Corporate Tax Rate: 5.5%–9.8% |
| KansasLLC | $255 | Medium | 1 day online, 3–5 days by mail | Medium | Personal Tax Rate: 3.1%–5.7% Corporate Tax Rate: 4%–7% |
| KentuckyLLC | $70 | Medium | 1–3 days | Easy/Medium | Personal Tax Rate: 5% Corporate Tax Rate: 5% |
| LouisianaLLC | $155 | Hard | 2–3 days | Hard | Personal Tax Rate: 2%–6% Corporate Tax Rate: 4%–6% |
| MaineLLC | $280 | Medium | 5–10 days, or immediate processing for $100 | Medium | Personal Tax Rate: 5.8%–7.15% Corporate Tax Rate: 3.50%–8.93% |
| MarylandLLC | $425 | Medium | 5–7 days online, 4–6 weeks by mail | Medium | Personal Tax Rate: 2%–5.75% Corporate Tax Rate: 8.25% |
| MassachusettsLLC | $1050 | Medium | 24–36 hours | Medium | Personal Tax Rate: 5% Corporate Tax Rate: 8% |
| MichiganLLC | $100 | Medium | 10–15 days | Medium | Personal Tax Rate: 4.25% Corporate Tax Rate: 6% |
| MinnesotaLLC | $100 | Medium | Approximately 10 days | Medium | Personal Tax Rate: 4.25% Corporate Tax Rate: 6% |
| MississippiLLC | $100 | Medium/Hard | 1–2 days online, 2–3 weeks by mail | Medium | Personal Tax Rate: 4.25% Corporate Tax Rate: 6% |
| MissouriLLC | $57–$112 | Easy | Immediate Online, 5–10 Business Days by mail | Easy | Personal Tax Rate: 1.5%–6% Corporate Tax Rate: 6.25% |
| MontanaLLC | $110 | Medium | 7–10 Business Days | Medium | None |
| NebraskaLLC | $125 | Hard | 1–2 Business Days Online, 3–5 by mail | Medium | Personal Tax Rate: 2.46%–6.84% Corporate Tax Rate:5.58%–7.81% |
| NevadaLLC | $600 | Medium/Hard | 1–3 Days Online, 3–5 Days by mail | Medium | None |
| New HampshireLLC | $215 | Medium | 2 hours in person, 1 week Online, 3 weeks by mail | Medium | Personal Tax Rate: 0% Corporate Tax Rate: 7.7% |
| New JerseyLLC | $228 | Medium | 1–3 Days, 24 hours expedited | Medium | Personal Tax Rate:5.535%–8.97% Corporate Tax Rate:11.5% State: $125 per LLC Member |
| New MexicoLLC | $70 | Easy | 1–3 Days | Easy | Personal Tax Rate:5.9% Corporate Tax Rate:4.8% |
| New YorkLLC | $270 | Hard | 6–7 weeks | Hard | Personal Tax Rate:4%–10% Corporate Tax Rate:7.25% |
| North CarolinaLLC | $255 | Medium | 7–10 Business Days | Medium | Personal Tax Rate:5.25% Corporate Tax Rate:2.5% |
| North DakotaLLC | $185 | Easy | 2–3 Weeks | Medium | Personal Tax Rate:1.1%–2.9% Corporate Tax Rate:1.41%–4.31% |
| OhioLLC | $138 | Medium | 10 Business Days | Easy | Personal Tax Rate:0%–4.79% Corporate Tax Rate: None if under $150,000 in annual profits |
| OklahomaLLC | $135 | Medium | 2 Business Days Online or 7–10 by mail | Medium | Personal Tax Rate:0.5%–5% Corporate Tax Rate:6% (Drops to 4% in 2022) |
| OregonLLC | $300 | Medium | 7 Business Days | Easy | None |
| PennsylvaniaLLC | $195 | Medium/Hard | 7–10 Business Days | Easy | Personal Tax Rate:3.07% Corporate Tax Rate:9.99% |
| Rhode IslandLLC | $250 | Medium | 2–3 Business Days | Easy | Personal Tax Rate:3.75%–5.99% Corporate Tax Rate:7% |
| South CarolinaLLC | $135 | Medium | 24 hours Online,5–7 Business Days by mail | Easy | Personal Tax Rate:0%–7% Corporate Tax Rate:5% |
| South DakotaLLC | $240 | Medium | Immediately for Online, 1–2 Business Days by mail | Easy | None |
| TennesseeLLC | $620–$6020 | Medium | 24 hours Online,3–5 Business Days by mail | Medium | Personal Tax Rate: 0% Corporate Tax Rate:6.5% |
| TexasLLC | $340 | Medium | 1–3 Business Days | Easy | Annual Franchise tax:0.37%–0.75% |
| UtahLLC | $112 | Medium | 2 Business Days Online, 5–7 By Mail | Medium | Personal Tax Rate:4.95% Corporate Tax Rate:5% |
| VermontLLC | $180 | Medium | 1–2 Business Days online, 7–10 Business Days by mail | Medium | Personal Tax Rate:3.35%–8.75% Corporate Tax Rate:6%–8.5% |
| VirginiaLLC | $160 | Medium | 3–12 Business Days | Medium | Personal Tax Rate:2%–5.75% Corporate Tax Rate:6% |
| WashingtonLLC | $290 | Medium | 7–10 Business Days | Medium | None |
| West VirginiaLLC | $140 | Medium/Hard | 5–10 Business Days | Medium | Personal Tax Rate:3%–6.5% Corporate Tax Rate:6.5% |
| WisconsinLLC | $170 | Medium | 2 business Days Online, 5 by mail | Medium | Personal Tax Rate:6.27% Corporate Tax Rate:7.9% |
| WyomingLLC | $202 | Medium | 10–15 Business Days | Medium/Hard | None |
Conclusion
Now you know the basics of forming an LLC and which states have the best tax rates for businesses, processing times, start-up costs, and the least ongoing compliance. With all that information, it’s easy to see why I picked Colorado as the best state for forming an LLC.
Of course, the best option for new business owners is typically forming a domestic LLC in their home state, but if your small business is ready to expand, then Colorado is the best choice based on the five factors discussed today. By forming an LLC in the state of Colorado, you’ll get the best balance of low tax rates, low start-up costs, ease of formation, processing speed, and ongoing compliance in the country.
Even though some states offer faster processing times, considering how easy and cheap it is to start a Limited Liability Company (LLC) in the state of Colorado, I’d say it’s worth the wait.
If you’d like any more information on the factors I used to determine the best states to form an LLC in, check out the table below.
