Starting a Limited Liability Company (LLC) has become an attractive option for many entrepreneurs, offering the protective benefits of a corporation with ease and tax advantages similar to a sole proprietorship.
However, it is essential to understand the financial commitments this entails. These include the initial charges for state filings, recurring fees such as yearly reports, and occasionally, franchise taxes.
Though fees can differ based on location, some expenses, such as registering a business name and establishing a bank account, tend to be more consistent across the board.
Our knowledgeable financial advisors have put together this detailed guide to give you a clear picture of the costs you’re likely to encounter when forming an LLC. Let’s explore!
Brief Overview
- Yearly upkeep costs for an LLC, which consist of fees for reports, franchise taxes, and services for a registered agent, can range from $100 to $300.
- Other usual expenses include legal assistance for setup (potentially as high as $2000), tax preparation (averaging $457 for Schedule C filers), and publication fees required in some states.
How Much Does It Cost to Form an LLC?
The price tag for creating an LLC can widely vary from one state to another and also depends on the type of business and its intended purpose. General filing fees can run from as low as $35 in Montana to as high as $520 in Massachusetts, and other business-related expenses can push your total startup costs to about $1,000.
Below is a rundown of the costs you should keep in mind if you’re setting up an LLC for a venture like a restaurant, Airbnb, or other small business models.
LLC Name Reservation Fees
You may need to secure the business name of your LLC by registering it with the Secretary of State. This requirement varies by state, so make sure to check if your government mandates it. Certain states, such as Alabama, California, Delaware, and Texas, have made this process obligatory.
Filing Expenses
The main cost associated with this process is the state LLC filing fee for submitting the LLC Articles of Organization (also known as Certificates of Organization or Certificates of Formation).
Each local government has a different fee structure, and the price tends to vary based on the nature of your LLC. For example, in California, the state filing fee is $70 while in New York, it’s $200.
Also, if you prefer having your LLC getting approved faster, then you need to pay extra for expedited filling.
Additionally, you can use these cheap LLC formation services with packages starting from 0$.
Registered Agent Fees
All 50 states require LLCs to designate a registered agent responsible for receiving legal documents. You can act as your own registered agent or use a professional service. If you decide to hire, expect registered agent costs to vary, with $100 to $300 annually being the norm.
Operating Agreement Costs
While not filed with the state, the LLC operating agreement outlines the regulations and capital contributions of owners and should be kept in your company’s records.
If you create the agreement yourself, it can be virtually free. Just ensure you cover all necessary details accurately. Online resources provide templates as a starting point.
Alternatively, hiring an attorney to draft the agreement may cost between $200 to $1000, depending on your business structure’s complexity and the attorney’s rates.
Our expert analysis indicates that investing in a professionally drafted operating agreement is the wisest decision, as it helps to prevent possible disputes and confusion in the future.
Employee Identification Number (EIN) Fees
The Employer Identification Number acts like a Social Security number for your LLC, providing a unique nine-digit identifier. This application is free and can be completed online via the IRS website.
However, if you decide on a professional service to apply for an EIN, a service fee will apply, varies based on the provider chosen. For instance, Northwest Registered Agent charges $50, whereas ZenBusiness charges a fee of $99.
See also: Can an LLC Have Employees?
Publication Fees
A few states, like Arizona, Nebraska, New York, and Pennsylvania, require LLC publication in local newspapers. This fee is not universal and can range greatly from around $50 upwards, depending on the publication and advertisement size.
The goal of this is to inform the public about the new business and its members.
Opening a Bank Account
LLCs must have a distinct business bank account, necessitating proper documentation and ID. Most banks offer this service without charge, though some specialized accounts might come with fees of up to $50.
Recurring Fees for LLCs
Ongoing costs continue after LLC formation, including yearly reports and franchise taxes.
Annual/Biennial Reports
Most states (48 of them) require either annual or biennial report submission for LLCs, which comes with a fee. These fees are highly variable, with Alaska demanding $100 yearly, while Idaho doesn’t charge at all.
Franchise Taxes
Some states impose an annual franchise tax, like a fee for the privilege of operating there, based on the LLC’s gross income. Yearly, this could range from $300 to several thousands of dollars, varying with business specifics.
State Business License Renewal Fees
You may also need to renew your license or permit every year. The cost of this process will vary depending on the type of business you are running and the specific state regulations. In New Jersey, for example, you might have to pay up to $75 for a license renewal.
Hidden Costs of Forming an LLC
While the LLC startup costs and ongoing expenses of maintaining a small business are generally well-known, there are three less obvious expenses that prospective small business owners should be aware of.
Legal and Professional Commissions
Whether you hire a lawyer or use a formation service, expert help is a significant but necessary expense. They can advise on the best business structure, help write an LLC operating agreement, and ensure the correct filing of all formation papers.
According to data from LegalMatch, attorney fees for creating an LLC can range from $500 to $2000.
Tax Preparation Expenses
While LLCs don’t pay corporate income tax like an S corp or C corp, members need to report their LLC’s profits or losses on their personal tax returns.
However, the complexities of the income tax may be challenging to navigate. Hence, many small business or LLC owners opt for tax preparation services.
The National Society of Accountants reported that, in 2020, the average state fee to prepare a Schedule C (profit or loss from business) tax form was $457.
State-Specific Filing Fees for Starting an LLC (2023)
Considering the wide range of costs associated with forming an LLC, it is very important to understand the fees for your particular state. Below, we have included a breakdown of formation fees in all 50 US states so that you can budget accordingly.
| State | Filing Fee |
|---|---|
| Alabama | $236 |
| Alaska | $250 |
| Arizona | $85 |
| Arkansas | $45 |
| California | $70 |
| Colorado | $50 |
| Connecticut | $120 |
| Delaware | $110 |
| Florida | $125 |
| Georgia | $100 |
| Hawaii | $51 |
| Idaho | $104 |
| Illinois | $154 |
| Indiana | $98 |
| Iowa | $50 |
| Kansas | $166 |
| Kentucky | $40 |
| Louisiana | $105 |
| Maine | $175 |
| Maryland | $155 |
| Massachusetts | $520 |
| Michigan | $50 |
| Minnesota | $155 |
| Mississippi | $54 |
| Missouri | $52 |
| Montana | $35 |
| Nebraska | $104 |
| Nevada | $436 |
| New Hampshire | $102 |
| New Jersey | $130 |
| New Mexico | $50 |
| New York | $205 |
| North Carolina | $128 |
| North Dakota | $135 |
| Ohio | $99 |
| Oklahoma | $104 |
| Oregon | $100 |
| Pennsylvania | $125 |
| Rhode Island | $156 |
| South Carolina | $125 |
| South Dakota | $150 |
| Tennessee | $309 |
| Texas | $310 |
| Utah | $54 |
| Vermont | $125 |
| Virginia | $100 |
| Washington | $200 |
| Washington DC | $99 |
| West Virginia | $100 |
| Wisconsin | $130 |
| Wyoming | $100 |
Ways to Save on LLC Formation Costs
Let’s discuss some key strategies you can employ to reduce LLC costs. Being alert and proactive can help you control your expenses effectively, ensuring that you get your new venture off the ground without unnecessary financial stress.
DIY Formation
Undeniably, one effective strategy to reduce the additional LLC costs associated with the filing process is opting for a do-it-yourself (DIY) approach. By taking charge of the process, you can eliminate the need for lawyer commission and other service charges.
Even tho, this is the cheapest way to start an LLC, our careful evaluation of the topic reveals that the DIY route is not always the most suitable as it requires a thorough understanding of the state rules and the process involved.
Online LLC Formation Services
An online LLC formation service offers an appealing middle ground between hiring a business attorney and the DIY approach. Companies like ZenBusiness and IncFile provide services starting from 0$ to guide you through the process, including preparing and filing your paperwork.
FAQs
Yes, it is possible to start an LLC for free. However, you will still need to pay for the cost of filing the paperwork with your state government and any additional fees associated with the process. Additionally, depending on where you live, there may also be ongoing costs associated with operating an LLC such as federal taxes and annual registration fees.
No, you do not need to hire a lawyer to form an LLC. However, many business owners opt for professional advice since the process can be complex and require detailed knowledge of state regulations. Additionally, if your LLC will have multiple members or undertake complex operations, it is especially important that you consult a lawyer for guidance regarding pass-through taxation.
The state with the lowest LLC filing fee is Montana, which charges just $35. Kentucky and Arkansas also have relatively low state fees of $40 and $45 respectively.
References:
- https://www.legalmatch.com/law-library/article/how-much-will-a-business-lawyer-cost.html
- https://higherlogicdownload.s3.amazonaws.com/NSACCT/725010a8-142f-4092-8b5d-077c2618c728/UploadedImages/Membership/IncomeandFeeSurvey/NSA2020-2021_IncomeandFees_FullStudy.pdf
- https://www.state.gov/secretary/
- https://www.irs.gov/
