Where should I form my LLC or corporation?

Once you decide on your business structure, your next decision is to choose where you will form your company.

If you've researched forming an LLC or corporation, you likely have encountered ads encouraging you to form your company in Delaware, Nevada, or Wyoming. They argue that these states offer advantages above and beyond the state where your business is.

While these states sometimes provide a few unique benefits, you must consider whether these benefits are desirable or even apply to your particular circumstances.

So let's consider how the mechanics of operating a business impact the decision on where to form your company.

Take note: regardless of where you form your company when you conduct business in a different state, you must also register there, pay taxes, and file reports.

The state where you form your company is your home state, where you're considered a domestic entity. You must follow your home state's laws and regulations, pay taxes or fees, and file reports.

You must register as a foreign entity to transact business in another state. What constitutes transacting business varies by state. The most common considerations include whether the company has a physical presence, employees, or bank account and if and how often you meet clients in the state.

To register as a foreign entity, you must obtain a Certificate of Authority, name a registered agent, pay state filing fees, file annual reports, and pay yearly fees.

The result: You complete ongoing compliance tasks in your home state and every state where you register as a foreign entity.

It's true. You can form your company in any state. However, most businesses should generally register in the state where they reside and generate revenue.

While there might be some exceptions to this general rule, you should form your company in the state where you and your customers are.

Keep things simple and avoid the extra fees, taxes, and compliance headaches of multiple registrations.

Bottom line: when you're questioning where you should form your company, consider the following:

• Where you'll derive most of your revenue

• How many states you'll be doing business in

• State filing fees, both domestic and foreign

• Post-formation and ongoing compliance requirements

• Annual report and franchise tax fees

• Registered agent fees

• State law and taxation requirements