We would like to form a new LLC. There will be 3 parties involved and want to figure out in which state we should form the LLC, Virginia, Ma...

Question

We would like to form a new LLC. There will be 3 parties involved and want to figure out in which state we should form the LLC, Virginia, Maryland or Delaware. 2 parties reside in Maryland and the 3rd in Virginia.

This company will be created for 1 service only. This service will be an electronic service, similar to dropbox. It will be hosted on Amazon servers and will be available globally. It will be distributed by mobiles devices or a website. There is no staff other than the 3 partners. The product will be developed by a consultant. How can we determine the benefits / disadvantages for registration in each state?

Answer

Which state is better?

Each state has an LLC creation and management act (set of laws governing the formation and management of an LLC). Compare them. That will give you a topical comparison of the different states. Delaware tends to be more friendly towards defining business necessity and the rights of the directors to make decisions regarding business operations -- but is very clear that minority shareholders have significant and meaningful rights.

You should schedule a meeting with a business attorney who can review why you choose an LLC instead of a Sub-S corporation, or an LLP. You need to understand what you are doing from the most basic type-of-business question, and only then consider what locale serves you. We do not recommend DE for small businesses. When your capital investment exceeds $1 million and/or your intend to distribute shares, then DE makes sense. Otherwise, look to the local state corporation commission and save yourself the headache of foreign venues.

If you would like to discuss your business formation choice, we're available to advise on best tactics and more importantly, why you want to proceed the proper way with your business. Make a mistake here, and you are facing significant and considerable legal expenses in the future (we are representing parties in a minority shareholder suit now -- this is very serious). Call us at 703-402-2723.

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