US company formation: choosing your entity and your state

There are two decisions here and they are not equally important. The entity type shapes how you are taxed, whether you can take on investors, and how much administration you will carry for the life of the company. The state mostly decides how much you pay in fees.

Founders reliably spend a week researching the second and an afternoon on the first. This guide inverts that.

Decision one: the entity type

The LLC case

An LLC gives you liability protection without a board, minutes, bylaws or a company secretary. By default the IRS disregards a single-member LLC entirely for income tax — the profit flows to the owner and is taxed there. That is administratively simple and, for most founders, cheaper.

It is also flexible in a way people underuse. An LLC can elect to be taxed as an S-Corporation or a C-Corporation without changing its legal form. So the tax treatment is a dial you can turn later; the legal wrapper is not something you have to get right on day one.

The C-Corp case

If you are raising venture capital, form a Delaware C-Corp. This is not a preference, it is a market convention: US venture funds have structural reasons to avoid pass-through entities, and standard financing documents assume a Delaware corporation. Trying to raise a priced round as an LLC costs you legal fees and goodwill.

The price is double taxation — profit is taxed at 21% federally at the company level and taxed again when distributed — plus real corporate formalities. For a company that reinvests everything and is aiming at a large outcome, that trade is usually fine. For a profitable consultancy paying its owner, it is expensive.

Decision two: the state

The rule is short, and almost every blog post in this category gets it wrong.

If you have a physical presence in a US state, form there. If you have no US physical presence at all, the state is genuinely a free choice.

If you operate somewhere in the US

Physical presence means employees, an office, inventory in a warehouse, or you living there. That creates nexus, and nexus means the state can tax you and requires you to register. Forming in Wyoming does not remove California nexus; it just means you now have a Wyoming LLC that must also register as a foreign LLC in California — two sets of fees, two sets of filings, no benefit.

If you have no US presence

This is most international founders. With no nexus anywhere, no state has a claim on your income, so you are choosing on cost, privacy and recognisability.

What you actually file

1. 1Check the name is available on the Secretary of State's register. Most states let you search free.
2. 2Appoint a registered agent with a physical street address in the formation state. Required everywhere; $50–$150 a year if you don't live there.
3. 3File articles of organisation (or certificate of formation). This is the document that creates the entity.
4. 4Write an operating agreement. Not filed with anyone. Kept by you and shown to banks.
5. 5Apply for an EIN — see the EIN guide, and start it the day the entity exists.

The operating agreement

An internal document setting out who owns what, who decides what, how profits are split and what happens when someone leaves. No state files it. Nearly every bank asks to see it.

For a single-member company it is short and still worth having: it is the paperwork that evidences the company is a separate thing from you, which is the entire point of forming one. For multi-member companies it is the document that prevents an expensive argument later, and it should be written while everyone still likes each other.

Registered agents

A registered agent receives legal service and state correspondence on the company's behalf, at a physical address in the state, during business hours. A PO box does not qualify. If you live in the state you can be your own agent, at the cost of putting your home address in a public register.

For international founders it is simply a required service. The one thing to check before buying: whether mail forwarding and compliance reminders are included, or billed separately.

Mistakes that are expensive to reverse

1. 1Forming a C-Corp "just in case." Two years of corporate-level tax and board formalities for a round that never came.
2. 2Forming in a state you have no connection to while operating in another. You pay both.
3. 3Skipping the operating agreement, then being asked for it mid-way through a bank application.
4. 4Naming the company after one product. Companies outlive products.
5. 5Not checking trademark availability, only the state register. They are different things, and only one of them gets you a cease-and-desist.
6. 6Forgetting the registered agent renewal. The state loses the ability to reach you, and eventually dissolves the company administratively.

Where to go next

Forming from outside the US changes three of the steps above — read international founders. Once the entity exists, the EIN is the immediate next move, because everything else waits on it.