Which state is it better to form an LLC taxed as S-Corp in terms of taxes, ease of business, paper works and legal matters?
Hawaii or California?
The other partner will be based in Hawaii and we are in California. We need to decide which will be more beneficial for the LLC.
Chapter 7 Bankruptcy Attorney
If you are going to be based in California, you are better off just forming the entity in California.
First, the firm is a debt relief agency according to the U.S. Bankruptcy Code. We help people file for bankruptcy. We also do other stuff and we do it well, but Congress wants me to post this notice. Second, nothing on this site is legal advice. You are not my client unless you enter into a written agreement signed by you and me.
If you have one member working in CA and one member in Hawaii, you will have to register the LLC in both states, as the LLC is working in both. If only one is working, that is probably the state in which to register.
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The answer is the state where you are doing business. Both states are very "administrative".
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
In the initial analysis of choosing between a LLC taxed as a corporation or simply a corporation will be based upon your thoughts as to (1) management; (2) taxes and (3) exit strategies. So to really answer your question, which would involve a more robust discussion, you will want to choose one or two attorneys to call to have that free initial 30 minute consultation.
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There are many situations where corporations (or LLC's) benefit from forming in a particular jurisdiction (Delaware and Nevada are common choices). However, even if you form in another state, you still need to "qualify" in any state in which you're doing businesss (and, so, satisfy the administrative and tax filing burdens of both states). In the smaller company context, it's generally simplest and best to form under the laws of the state in which your primary business activity is located (and then evaluate whether or not you need to qualify in any other state where you're also doing business). It's not too difficult to change states later.
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If you can afford the upkeep; consider Wyoming or Nevada for purpose of preserving "charging order" asset protections.