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Ask HN: Is it bad to form an LLC outside the state of your business?

6 points by norova ↗ HN
Title says it all. I know it is usually recommended to form a C Corp in Delaware due to the courts having experience with VC-funded businesses there, but does the same thing apply to somewhere for LLCs as well?

9 comments

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mikeleeorg
As I understand it, the answer is the same for a C Corp as it is for an LLC: it depends on the nature of your business. If you do a lot of business in your home state, I believe most business attorneys advise incorporating in your home state. If not, like a typical dot com company, than it is fine to incorporate in another state.

For many small businesses that usually opt for LLC structures, I've heard anecdotally that Nevada and Florida are good states with LLC-friendly laws - as opposed to Delaware and its C-Corp-friendly laws.

Disclaimer: I am not a lawyer, so take this with a grain of salt. I would recommend consulting a lawyer to get a more definitive answer.

robflynn
Note that sometimes you will also have to register in your home state as a "foreign LLC" if you have created the LLC in another state.
mindcrime
I could be wrong, but I think many states require any "foreign" business to register, if they intend to do business in that state. Obviously for a dot com, the exact definition of "doing business" is a bit fuzzy (see Amazon.com and their battles over this issue). But it's something to look into and consider, at the least.
micks56
Yup.

Also, doing business in your home state is automatic. Working there = doing business there.

Filing an LLC in another state without actually doing business there is useless.

tptacek
Not particularly, and it is extraordinarily common.

Delaware isn't particularly useful for early stage LLCs, but bear in mind that your home state may be a bear to file in. Some states, like NY, require you to run ads in a newspaper.

veyron
The NY LLC Newspaper requirement costs some money (1200 in New York County), but you will more than save that money in other tax incentives. Check out ST 121.3 (sales tax exemption for computer hardware) -- unless you live in delaware, you will easily save more than your cost.

Plus if you want to do business in NY you may be forced to file as a foreign LLC, which also requires you to do the newspaper ads.

curt
I like forming LLC's in Indiana. It's cheap, takes a few minutes, no hidden fees, and no hassles. Once the company becomes something you can reincorporate in the right state for your business.
micks56
No.

Filing in a state that you aren't yet doing business has no benefit and could actually hurt you.

By registering in a state you are consenting to being sued there. Why would you register a Delaware (or elsewhere) LLC when you are in California. Bad idea.

Second, if you don't register in your home state it could be found that you aren't operating an LLC at all. Say hello to personal liability for your debts.

Register in your home state, and as you expand to operations/contacts in other jurisdictions, register there.

deafcheese
What are you basing your opinion off of? Almost every law textbook would disagree with you.

There are three states where LLCs are commonly formed: Delaware, Nevada, and Florida. VCs, accountants, and lawyers are all familiar with the laws in these states, which are well-established and friendly to small businesses. This means that any disputes are likely to be resolved faster and cheaper in court should they ever arise.

The only downside is that you might have to register the out of state LLC in your state, and depending on the state, you may have to pay some extra taxes. But the benefit of filing a well-known LLC is far worth the hassle.