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Form LLC in my home state...or not?

Asked by: Andy - 25 September, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 I live in Idaho, but I don't plan on living in Idaho forever. Within the next 5 or 10 years I will relocate. I am starting a company that is based entirely on the Internet - nothing bricks and mortar. The product sales, manufacturing and distribution will all occur outside of Idaho. Therefore, is it in my best interest to incorporate as an LLC in a state such as Wyoming versus Idaho? Especially since I will eventually relocate anyway? (But not to Wyoming). Other considerations that may affect your answer are if I incorporate as a single member LLC or a partnership (I've learned that I will have additional asset protections if I form a partnership. In that scenario I would create a manager-managed LLC having one silent member and I would be the manager), and if I can avoid Idaho taxes with a Wyoming LLC simply by distributing member or manager income in the correct way.
Answered by: Ray Albert - 27 September, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/194.jpg-630c771619e92bede7e6f696b56767b9 Andy,

With an internet-based business, you technically could register your business in any state. Wyoming or Delaware are the typical favorites for the business-friendly benefits given to businesses registered in those states. 

Keep in mind, if your using an Idaho address as the business address, and were planning on writing off your business expenses, you may create a strong nexus in your home state where you would have to eventually file in Idaho as a foreign entity anyway. 

As far as taxes go, LLC is a pass-through entity, which means your company is not taxed on company level, and instead its profits or losses are passed on to you as the owner. You will then pay your taxes based on your state of residence. Being that you will be in Idaho for the next 5-10 years, it may serve your business plan best to initially register your LLC in Idaho

As far as limited liability protection goes, single-member LLCs are considered to be riskier than multiple-member LLCs, however I would not go deep into the murky legal waters of why it is this way, and instead would recommend you to consult a business attorney who will be able to explain this more professionally.

With that being said, your plan of having manager-managed LLC with one member would still create a single-member LLC, so it doesn't really solve the issue. You should form your LLC with a partner to make it multiple-member LLC. If you want to protect it both ways you could form a manager-managed multiple-member LLC with you being one of the member with 50% and have someone you trust be the manager on file and someone else be the second member (also, your LLC should be elected to be taxed as partnership). If you need more advise on that I would recommend you to speak with a business attorney specializing in asset protection.

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