This question comes from Vita:

Q: What are the advantages of foreign-filing your Nevada LLC to do business in another state vs. just forming an LLC in that state to begin with?

A: This is an excellent question. I hear all the time from people who have heard attorneys tell them they should always form in the state in which they are doing business or other attorneys who say to always form outside of the state in which they are doing business. The reality is that both of these answers can be correct, depending on your facts and circumstances and on in which state you are doing business.

My general rule is that if you are doing business in your home state and you plan on residing there for the foreseeable future, you probably should simply form in that state. The reason? You are going to be sued in that state anyway, regardless of where you are formed.

On the other hand, if you plan on leaving the state sometime soon, then it’s generally a good idea to form in a good, non-tax state that is outside of your state, such as Wyoming or Nevada. In addition, there are certain states that have bad LLC laws, such as Florida, California and Colorado due to recent court cases that give uncertainty as to the asset protection afforded to LLC’s in these states.

Most importantly, talk to your tax advisor AND your attorney. I’m not qualified to give legal advice. These are simply my rules of thumb as a tax advisor. My friend, Garrett Sutton, is an attorney who generally prefers his clients to form in Nevada or Wyoming. You can contact him at www.sutlaw.com.

For more information about the basics of asset protection, go to our course on asset protection at www.provisionwealth.com/products.

Warmest regards,

Tom