Choice of Jurisdiction

Scope of the chapter. The first decision in the life of an LLC is the choice of the state under whose statute it will be formed. Chapter 2 described the statutes themselves. This chapter examines the choice among them. It identifies the matters the formation state governs and those it does not, the costs that follow from forming in one state and operating in another, the principal formation states and the features that distinguish them, the place of charging-order protection and privacy in the decision, and the forum in which disputes will be heard. Particular attention is given to the Delaware Court of Chancery, whose standing as a forum has been the subject of sustained debate since 2024, and to Wyoming, whose legislature amended its veil-piercing statute in 2016 in direct response to a decision of its supreme court. The chapter closes with a decision matrix and worked examples.

The central question. The choice of formation state is a choice of governing law for the internal affairs of the LLC and for the liability of its members as members (see supra ¶ 290.03). It carries with it a choice of the courts most likely to construe that law, a set of annual costs, a set of public filings and, for some clients, a level of protection against the personal creditors of members. It does not change the law that governs the LLC's business operations, its taxes in the states where it does business, or the claims of third parties who deal with it. Much of the advice given on the subject errs by attributing to the formation state powers it does not have. A Wyoming LLC that operates a restaurant in California is subject to California tort law, California employment law, California taxes and, in many respects, California courts. The choice of Wyoming governs the relations among its members and the remedies available against a member's interest in a Wyoming court.

Organization. The chapter proceeds in nine parts:

1. the elements of the choice (¶ 510);
2. costs, including annual taxes, foreign registration and the definition of doing business (¶ 520);
3. Delaware (¶ 530);
4. the Court of Chancery as a forum since 2024 (¶ 540);
5. Wyoming and its 2016 veil-piercing statute (¶ 550);
6. Nevada, South Dakota and Texas (¶ 560);
7. charging-order protection as a factor in the choice (¶ 570);
8. privacy, reporting and other factors (¶ 580); and
9. making the choice (¶ 590).