Whether you plan to remain a single-member LLC filing on your personal tax return or your LLC will eventually elect S Corp status, the foundation is the same: everything starts with the legal entity. Your state determines the rules around formation, liability protection, annual requirements, and where your business is legally allowed to operate — and those rules apply regardless of your tax classification.
When forming your LLC, you ultimately want to register it in the state where you truly live, work, and pay taxes. This is your commercial domicile — the place where the business is managed and operated. Forming in a different state (even if it seems “business-friendly”) is allowed, but it doesn’t remove your obligations where the work actually happens. In most cases, you’ll still need to register in your home state as a foreign LLC, which adds extra fees and administrative layers.
At the core of forming an LLC is limited liability protection. That protection matters most in the places where risk exists — where you conduct business, where clients are located, where you or your assets are based, or anywhere you could reasonably face legal claims. For most solopreneurs, that’s simply the state where you live and operate day-to-day.
Where to Register Your LLC
Picking where to register your LLC isn't just about pointing to a map and choosing a state. Your LLC should be formed in your state of commercial domicile, where the business is truly managed and operated. For most owners, that’s the home state of the owner-operator.
While some people hear that states like Delaware or Wyoming are “best for business,” those benefits are generally designed for large publicly traded or privately held corporations — not small, pass-through entities like LLCs or S Corps. Forming outside your home state usually creates additional administrative work, duplicate fees, and extra tax obligations, without adding meaningful benefits for a small business.
Remember one of the reasons why you’re forming a legal entity in the first place: to gain limited liability protection. That protection matters most where you face potential exposure — where your clients are, where you work, where you or your assets are located, or where legal claims could arise. In most cases, that’s your home state.
Annual Costs and Compliance
Once you form your business, make sure you understand your state’s ongoing requirements. These can include annual reports, franchise taxes, local tax registrations, and licensing obligations. Every state is different, and many of these filings are not currently supported by Collective.
Planning ahead will help you stay in good standing and avoid unnecessary penalties.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.