The best state to file your LLC or Corporation may well be the state that you do business in.  In most cases, people will generally file in the same state their business is located in. It would make it things easier to file in the same state since all your revenues will be generated in the same state.

However, there are people who decide to file their LLC or Corporation in a different state other than the state they are located in.  The reasoning behind filing in other states are many.  The reasons can be due to taxes, privacy, corporate environment, lower regulation and others.  Filing in a different state can make things tricky when filing your tax returns.  So it is always best to consult with an accountant before you file.

Also, if you file in a different state, you will need to have a resident of that state to be the registered agent and this person must have a physical address.  Many people would not be able to provide a friend or relative in the state so they would require the services of a third party registered agent.  These entities sole purpose is to provide address in all 50 states to where the Secretary of State can serve process and send legal forms.  These registered agent services would then forward these documents to you.

Again, it is wise to get advisement on what state may be best for you.  You should be well informed about the pitfalls of forming in a different state.

One of the best parts of forming a Corporation or Limited Liability Company is that it provides the owners personal liability protection.  Actually, this is one of the main reasons for forming a Corporation or LLC. 

When running a sole proprietorship, the responsibility of the company is squared onto the person running the business.  Therefore, if a customer gets hurt from any negligence related to the operation of your business, your personal and business assets are liable to a lawsuit.  However, if you file a Corporation or LLC, your personal assets will be protected.  In running your business, the individual working for the Corporation or LLC is not obligated to pay any debts or claims against the company.  Only the business assets and what assets the individual brings to the Corporation or LLC is vulnerable to a lawsuit.  Therefore a creditor can't legally sue for your personal assets such as your home or your car. 

There are exceptions to this liability proection however.  Actions done by an individual while directly working for the Corporation or LLC can make this individual vulnerable to a lawsuit.  These exceptions include events such as the person directly injuring another person, if the person co-signs or guarantees a loan, co-mingling assets between the business and person, or fraud. 

To keep your business affairs separate from yourself it is vital that you maintain separate bank accounts.  Do not pay for business expenses using personal accounts.  It is a good idea to maintain good bylaws and a operating agreement depending on the business type. 

Although, the liability protection protects you as a person from any debts and obligation, you must also protect your business as well.  There are many types of liability protection that you can obtain for the business.  Like most insurance, fees can vary drastically depending on the coverage and provider.

You can read more at our Limited Liability for LLC and Limited Liability for Corporations pages.

This is a question that comes up constantly.  How do I choose between filing a LLC or Corporation for my small business.  For starters, the LLC and the Corporation will provide the exact same liability protection for your small business in the event of a lawsuit.  So know that you’re protected no matter what type of entity you choose. 

In choosing between the two, you’ll need to know what your goals are for your business.  If you’re content with running your small business and have no intentions of growing your business in the fortune 500 company, then you may be fine with a LLC.  LLC’s are generally easier to operate for small businesses and afford the ease and flexibility so that you can concentrate on other things. 

However, if you have bigger goals in mind, then a corporation may be best suited for you.  If you plan to raise capital and sell partial ownership of your company to raise fund, then you have the flexibility to sell shares and ownership of the corporation. The distinction between a S and C corp is that a C corp, the corporation is taxed twice and the S corp has pass through taxation.  Which will be best for you will be determined on how it will affect your taxes.  So consulting a tax professional will be a must. 

Still choosing the type of entity that best suits your needs may seem daunting at first but it really is fairly simple.  There may be more to which type of entity is best for you but when it comes down to it, ease of use, taxes, and growth are the main criteria in choosing which entity will be best for you.  You can also consult the LLC learning center and the corporation learning center for more advice on this matter.

The most common entities are Corporations, S-Corporations and Limited Liability Companies. Many people need help in deciding what type of entity to file for, we always suggest speaking to an accountant or a business attorney in your state in order to get advice for what type of entity would be best for you. Before contacting a professional it's probably a good idea to learn about the different types of entities. I'll give you a run down of the basics:


Limited Liability Company - Often referred to as an LLC, this type of entity is widely popular with smaller businesses, as it’s generally easier to take care of than a corporation. Since there are no stocks in an LLC, LLCs are owned and usually owned by members. You can have an outside party manage an LLC that you’re a member of, though it’s not usually what smaller companies choose  to do since they’re so small it’s not necessary to have an outside party manage their LLC.


Corporations – Corporations are entities that have shareholders and a board of directors. While the shareholders own the corporation, the board of directors run and make decisions for the corporation in the interest of the shareholders. Every shareholder can vote on the directors, and amendments made to a corporation’s articles. Corporations might sound like huge companies, but lots of times small businesses run by one or two people are incorporated, because a corporation might benefit them more than an LLC or another type of entity. An S-Corporation is essentially the same as a corporation, though it is taxed differently than a regular corporation, also known as a c-corporation. We suggest you speak to your accountant in regards to whether an S or C corporation is best for you.