State of formation
The US state where an entity is legally created. For Delaware LLCs, this is Delaware.
Definition
The state of formation is the US state whose laws govern the entity's internal affairs. The state of formation is fixed at formation and is the entity's legal home regardless of where the business operates. Delaware is the most popular state of formation for US business entities, particularly for non-resident founders.
Context
State of formation differs from states of operation. A Delaware LLC operating in California has Delaware as state of formation but may need to foreign-qualify in California.
Example
A Bangladeshi founder forms a Delaware LLC. The state of formation is Delaware. If the founder later opens a US office in California, California becomes a state of operation and triggers foreign qualification.
Common pitfalls
- Confusing state of formation with state of operation.
- Changing the state of formation requires a domestication or merger process; not a simple filing change.