Does it matter where I form my LLC?

Sikender Singh Founder & CEO at Catalyst, Senior Consultant at EY

November 18th, 2014

I'm planning to launch a web app before the end of the year, and am forming an single-member LLC to which the web app will roll up through.

I've been bootstrapping for the last few months in trying to get this thing off of the ground, and all of funding has come from me personally.

I happened to be a resident of the state of New York, and I live in New York County. This is important because one of the stipulations in forming an LLC in New York State is that you must advertise your formation in publications in your county for a period of 6 weeks, and then send proof that you have done this to the State of New York. In New York City the average cost to do this is around $1300. And at best is $400 in any other county in New York.

I'd obviously like to avoid this fee if I can, so my question is, do I really need to form this LLC in New York vs. any other state that doesn't have this requirement? If I reach the point where I receive any funding, I imagine that I would be reforming as a C-Corp in Delaware anyway. The only advantage that I can think of in regards to forming in New York, is that as a New York State resident, I'll be filing my personal taxes in New York and so it may be better to form the LLC in New York as well.

Does anyone had a similar experience, is there any reason I shouldn't just form this LLC in a different state?

Shingai Samudzi

November 18th, 2014

If you form a business in another state, you will need to have a legal agent who is domiciled in that state - that person will act as a representative for your business in receiving things like legal summons and official mail. If you go that route, you would still need to file paperwork qualifying you to do business in the state of New York. Depending on what law firm you work with, that may cost you more than just forming the LLC in New York. If you go the RocketLawyer.com route, it will cost you less.

Eric Burleson Product Manager-Program Services at Invodo

November 18th, 2014

If at all possible, you should just incorporate as a c-corp in Delaware. The cost is comparable to what you are talking about spending, and if you are thinking of getting external funding ever, your investors will want it to be a C-Corp. This is an issue because changing it later is waaaaaaaay more expensive than just doing it right the first time.

Su Ross Attorney, Mitchell Silberberg & Knupp LLP

November 19th, 2014

You are free to form the LLC in any location that makes business sense to you. However, the key factor to keep in mind is that you will then end up being obligated to file tax returns where the LLC is formed and where you doing business, as they will be separate states. So, before you form an entity in a location other than where you reside and do business, you should consult with your tax advisor to make sure you aren't creating more complications for yourself as you seek to avoid the publication fee in New York.

Sikender Singh Founder & CEO at Catalyst, Senior Consultant at EY

November 18th, 2014

Jessica,

Couldn't find anything specific to New York state, which is what the specific issue here is. Though I suppose I may have missed it, if you found a thread and could provide a link, I'd really appreciate it.

Thanks!

Jessica Alter Entrepreneur & Advisor

November 18th, 2014

There are tons of discussions on LLC already - most can be found here http://members.founderdating.com/discuss/topic/LLC good to do a search first before posting

Anonymous

July 22nd, 2015

Because your startup is brand new, there's no reason to create an LLC. You're not making any money so why spend thousands of dollars in taxes and accounting fees.

Instead, just be a sole proprietor and enter your expenses on Schedule C of your tax return. Keep it simple!

I've been doing taxes for 14 years. My accounting firm is in Santa Clara, CA and most of my clients are startups, engineers, and real estate investors.

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