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Online Business-- What state is best to form an LLC? New York

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  • Online Business-- What state is best to form an LLC? New York

    Hi guys/gals,

    My team and I are moving to form an LLC. We will be creating an entirely online business. 3 members live in NYC and one lives in California.

    We just want to know what would be the most beneficial state to form an LLC. I keep hearing "Delaware" but don't really know why exactly.

    I have permanent addresses in CA, AZ, and NY.

    In addition, because the business is online, and work will be done on it from different states, how would that work in terms of taxes...would each member report/pay taxes to their respective states? Is it that the LLC has to exist in one location but can have members from different states?

    I sound hopelessly lost..but I'm not! Just a little confused. Any help would be great!

  • #2
    There is no "best" state for LLC's. There are some advantages to a Delaware LLC, but for many small LLC's the differences are irrelevant. With most small businesses that do business in a state other than Delaware, choosing a Delaware LLC simply means that you have both the cost of forming the LLC in Delaware and the cost of qualifying to do business in the state where the business is located.

    There are, however, some features in Delaware law (and in the laws of other states) that may not be included in the state where the business is primarily conducted. For example, a few states, including Delaware and Illinois, allow for a "Series LLC." Most states do not yet have that feature, so if you want to use a series LLC, you will need to organize in a state that allows it.

    The second part of your question - the effect of having work done in multiple states - is very difficult to answer briefly. It also requires much more details about the nature of the business, including the type of work and the sources of revenues. Since an LLC is typically taxed as a partnership, each member may earn income in multiple jurisdictions and have to file multiple tax returns. You should hire a good accountant before you start to make sure that everything is reported properly.
    David K. Staub (www.illinoisbusinessattorney.com)
    Forum posts are not legal advice, are for informational and educational purposes only, and are not a substitute for proper consultation with legal counsel.

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    • #3
      dkstaub: Since an LLC is typically taxed as a partnership, each member may earn income in multiple jurisdictions and have to file multiple tax returns. You should hire a good accountant before you start to make sure that everything is reported properly

      I can not underscore the importance of dkstaub's advice boldly enough. If you are conducting business in multiple states, it is likely that the LLC and each of its members will have to file tax returns in multiple states.
      Barry S. Phillips, CPA
      www.BarryPhillips.com

      IRS Circular 230 Disclosure: This response is intended to provide general information and written for educational purposes only. It does not establish a client relationship. This communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any party any matters addressed herein.

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      • #4
        Amazing...thanks! ...What else do you think?

        Wow, thank you so much for your responses! It's amazing the speed and comprehensiveness in which you both responded, thank you!

        It seems then, that due to the fact that our members are in different states, it almost seems irrelevant where the LLC is formed as we'd be reporting taxes on earnings to different states anyway (and we're a small business, so the benefits you'd see in tax advantages wouldn't REALLY affect us?).

        Just to clarify further, we're planning an online webspace for competitive videogame players to be able to organize and enrich their gaming lives. We would mainly operate as a media vehicle for advertisers to target the 16-34 male demographic. So most of our money would come from advertisers. Small amounts of supplemental income would result from fees/payments by patrons of the website.

        Any new thoughts on LLC formation with that clarification?

        Comment


        • #5
          Yes make an appointment with a local corporate attorney that can help you file all the necessary paperwork and ascertain that you are following the law where Limited Liabilty Corporations are concerned. This is not something to be taken lightly and a corporate attorney is an absolute must when undertaking such a move.

          Good Luck to you.

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