If I’d like to set up an LLC, does it matter which state I file it in?

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If I’d like to set up an LLC, does it matter which state I file it in?

I’m a real estate investor seeking to acquire properties nationwide so my

business deals would not be restricted to any one state. What is a foreign LLC? And if I have an out-of-state LLC, as well as a foreign LLC in the case that I need one do I pay taxes to both states and file a tax return for both? Just trying to figure out what I need and I would like to be as cost-efficient as possible in regards to start-up LLC fees. I’m a NYC resident and if I incorporate in an another state, do I have to file for a foreign LLC in NYS?

Asked on October 24, 2018 under Business Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

There is no effective difference beween setting up an LLC in state A vs. state B: the LLC laws and court precedents among the different states are all so similar that there really is nothing to choose from between one and another, no matter how much certain states, like DE, that try to attract corporations or LLCs might try to convince you otherwise. There is a certain advantage to setting up the LLC where you will be primarily located, since even though the laws are fundamentally the same, the numbers of the relevant statutes, names of relevant cases, etc. are state specific--so since you're most likely to be sued or to sue in your primary state, you may as well make it as easy as possible for your attorney.
You have to file as a foreign corporation "doing business" in any state where you engage in business other than the state where your LLC was formed. This is just some paperwork and a small fee. To minimize fees, since you have to file anywhere you actually do business, don't set up your LLC in state where you live but won't actually conduct business, since that's one additional, unnecessary filing.
You pay taxes where you have an actual business operation. E.g. your "headquarters" is a business operation, so you pay taxes there, in that state. Say you also own property in state B. If you don't have a subsidiary, office, employees, etc. there--no operations--then even though you make money from state B, you should not have to pay taxes there; only in your home state. But if you have an employee or office in state B, the money earned by the operations in B should be taxed there. Operations are distinct from filing; you operate where have staff, offices. So your home state for tax purposes may or may not be where you set up the LLC.


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