Question 1

Which state is cheapest to form an LLC?

Accepted Answer

New Mexico is the cheapest state for an LLC at approximately $550 total over 5 years ($50 formation, no annual report fee, $100/yr registered agent). Wyoming is second at ~$860, and Kentucky is third at ~$665. Avoid California ($800/year franchise tax minimum), Massachusetts ($500/year), and Delaware ($300/year franchise tax) if cost is your primary concern.

Question 2

Do I need to form my LLC in the state where I live?

Accepted Answer

No. You can form an LLC in any state. However, if your business operates in your home state (physical office, employees, significant sales), you may need to foreign-qualify your out-of-state LLC, which adds filing fees ($50-750) and a second registered agent. For purely online businesses with no physical presence, forming in a low-cost state like Wyoming or New Mexico is common.

Question 3

What is a registered agent and do I need one?

Accepted Answer

A registered agent is a person or company designated to receive legal documents (lawsuits, subpoenas, state notices) on behalf of your LLC. Every state requires one. The agent must have a physical address in the state of formation. You can be your own agent if you live in the state, but most owners use a professional service ($100-150/year) for privacy and compliance.

Question 4

What is a franchise tax?

Accepted Answer

A franchise tax is an annual fee some states charge for the privilege of operating an LLC or corporation in that state. Not all states have one. California has the highest ($800/year minimum), followed by Delaware ($300/year), Nevada ($350/year), and Illinois ($300/year). States like Wyoming, New Mexico, Texas (for LLCs), and Florida have no franchise tax for LLCs.

Question 5

Should I form my LLC in Wyoming or Delaware?

Accepted Answer

Wyoming is better for small online businesses: lower cost ($100 formation, no franchise tax, $60/year report), strong asset protection, and no state income tax. Delaware is better for startups planning to raise venture capital or go public: it has the most business-friendly court system (Court of Chancery) and investors prefer Delaware entities. For most solo founders and small businesses, Wyoming is the more cost-effective choice.

Question 6

What happens if I do not file my annual report?

Accepted Answer

Most states will administratively dissolve your LLC if you fail to file annual reports or pay franchise taxes. This means your LLC loses its limited liability protection, and you become personally liable for business debts. Reinstatement is possible but involves additional fees. Some states (New Mexico, Arizona, Missouri) do not require annual reports, reducing compliance burden.

Question 7

Can I form an LLC myself or do I need a lawyer?

Accepted Answer

You can form an LLC yourself by filing Articles of Organization with your state's Secretary of State and paying the formation fee. The process typically takes 1-7 business days. However, services like Northwest Registered Agent, LegalZoom, or ZenBusiness can handle the filing for you ($39-299 plus state fees) and include a first year of registered agent service, which saves time and ensures compliance.

Question 8

Does an LLC protect my personal assets?

Accepted Answer

Yes, an LLC provides limited liability protection, meaning your personal assets (home, car, personal bank accounts) are generally protected from business debts and lawsuits. However, this protection can be pierced if you commingle personal and business funds, fail to maintain proper records, or personally guarantee a business debt. Always maintain a separate business bank account.

Rank	State	Form	Report	Franchise	5-Year
#1	Arizona	$50	—	None	$550
#2	Missouri	$50	—	None	$550
#3	New Mexico ⭐	$50	—	None	$550
#4	Indiana	$90	$0/2yr	None	$590
#5	Colorado ⭐	$50	$10/yr	None	$600
#6	Idaho	$100	—	None	$600
#7	Iowa	$50	$30/2yr	None	$610
#8	South Carolina	$110	—	None	$610
#9	Montana	$35	$20/yr	None	$635
#10	Minnesota	$155	$0/yr	None	$655

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