Cheapest Way To Start an LLC (Affordable Business Formation)
Forming a limited liability company is an important step, but this process doesn't have to be expensive.
With insights from our seasoned LLC experts, we've crafted this guide to help you start an LLC affordably.
- The cheapest way to start an LLC is by filing your formation documents directly with the state and obtaining an EIN for free from the IRS.
- While initial filing fees vary by state, it's essential to consider additional costs when forming an LLC outside your home state.
- Choose a state with lower filing fees for cost-effective LLC formation, considering long-term costs and operational requirements.
- While DIY formation can save costs, it's crucial to be thorough and understand the responsibilities, especially if acting as your own registered agent, to avoid potential pitfalls.
1. File the Formation Documents Yourself
When I started my first LLC, I took the DIY route. I secured a unique business name, appointed myself as the registered agent, and filed the Articles of Organization with the Secretary of State.
Before attempting to form an LLC, securing a name is a good idea. This reduces the likelihood of your LLC registration being denied due to using an already-used name.
The good news is that many states provide online databases where you may check the availability of any name you like.
The Division of Corporations of the Secretary of State is generally where LLC names are reserved for a small fee. Still, the reservation is optional if you launch your LLC immediately.
Filing the Articles of Organization
Once you have a name for your business structure, you can file the formation paperwork and pay the filing fee to the Secretary of State's office.
When the Secretary of State accepts the Articles of Organization, your LLC is formally constituted, and you can enjoy personal liability protection and pass-through taxation benefits.
The Articles of Organization include information about your organization, including the following:
- The company's name and address.
- The members' and managers' names and addresses.
- A declaration that states whether the firm will be run by management or its members.
- The name and address of the LLC's registered agent.
2. Use a Cheap Incorporation Service to File Your LLC Paperwork
For my second business venture, I wasn't too confident doing it all by myself. So, I opted for an affordable, well-grounded LLC formation service. It was a breeze, and they handled everything for a minimal fee.
Retain an incorporation service that offers a free basic plan with comprehensive filing and drafting of your legal documents.
The LLC service provider should have affordable packages that include name searches, registration, and filing of the Articles of Organization. It's even better to hire an LLC service provider that offers free professional registered agent services for the first year in their basic plan.
Along with offering paid services, you should hire a professional who offers a useful collection of free service features, including a how-to-start business handbook, a DIY emailing course, an LLC operating agreement template, and a small business running checklist.
3. File in a State Where the Fees Are Cheaper
I remember considering Nevada for launching my LLC due to its lower fees, but after some research, I realized my home state was more cost-effective in the long run
However, additional LLC costs can be involved with establishing an LLC in another state.
Typically, you must apply for foreign qualifications and engage a statutory agent who lives in that state who'll receive your company's official mail from the state.
4. Designate Yourself as the Registered Agent
Being your own registered agent can cut costs, but it comes with responsibilities. Mistakes can lead to financial or legal issues for your business.
It's critical to comprehend the specifics of becoming your own registered agent before making the decision and what you'll need to do to set yourself up for success.
As a registered agent, you must publicize the street location of your LLC; if it's your residential address, your home address will be made public.
Additionally, receiving lawsuits in front of your neighbors can be embarrassing.
As your own LLC statutory agent, you'll also have to be available all year round during regular business hours. This commitment will be challenging if you're someone who frequently travels or has a flexible schedule.
5. File for Your Own FEIN Number
You must obtain a Federal Employer Identification Number (FEIN) once your LLC has been approved. Your business entity is identified for tax reasons by this unique nine-digit number that the Internal Revenue Service issues .
An EIN is also necessary for small businesses to register a business bank account, pay taxes, and hire personnel.
You may get an EIN from the IRS if you are a sole proprietorship, C-corporation, single, or multi-member LLC. Applying online is the quickest way to receive an EIN. However, you can also download Form SS-4 and submit it by mail or fax .
While professional legal services charge state filing fees for this application, you can obtain an EIN for free with the IRS.
Here are a few brief pointers to assist you in navigating the procedure:
- Access the online EIN application on the official IRS website using a web browser to submit your application online.
- Online applications are the quickest, and you'll have your EIN immediately. You have 15 minutes to complete the application if you are applying online. Ensure you have all your information on hand; if not, you will need to start over.
- You must print the application and mail it if you decide to submit it by mail; this process might take up to four weeks. The EIN will typically be provided in four business days if you submit your application via fax.
6. Minimize Other LLC Formation Costs
Forming a limited liability company can be expensive, but you can minimize other LLC formation costs and lower the overall expenditure.
LLC owners should write their LLC operating agreement to guarantee that operations are carried out efficiently and that investments are safeguarded.
An operating agreement describes the internal workings of your company, including member obligations, ownership, capital contributions, and internal operations.
This is an important business document, and while hiring a lawyer to draft it may cost you anywhere from $200-$1000, it's cheaper to draft it yourself.
"The top management and the board of directors rely on a written operating agreement for decision making." - Katherine Taylor, LLC Lawyer
Avoid Corporate Kits
As a small LLC, you don't need a LLC corporate kit. You can use a normal file folder in a drawer to hold your documents, then purchase an expensive binder with an embossed cover.
A properly made corporate kit gives your firm a sense of validity while you're trying to raise money, keeps your formal documentation organized and accessible, and lends credibility to your fundraising efforts.
However, this item is not necessary if you're searching for a spot to cut expenditures right away.
You can purchase it later on once your business is profitable enough to increase expenditure without harming its profitability.
Cut Down Office Costs
When starting the LLC, you should consider the office costs like rent, furniture, stationery, and other supplies.
- If you're looking for office space, rent the cheaper one.
- Buy affordable but quality furniture.
- Opt for online cloud storage of your documents other than printing each document and incurring paper and printing costs.
Benefits of DIY LLC Formation
Do You Have To Pay For an LLC Every Year?
Yes, you have to pay for an LLC every year through taxes, annual reports, or biennial reports. The annual fee depends on the state you're transacting in.
Does Having an LLC Help With Taxes?
Yes, having an LLC can offer tax advantages. LLCs benefit from pass-through taxation, where profits and losses flow through to individual owners' tax returns. This structure allows for flexibility in choosing tax classifications and potential deductions, making it a tax-efficient option for many small businesses.
What State Has the Lowest LLC Taxes?
The state with the lowest LLC taxes often varies based on specific tax considerations, but Wyoming, Nevada, and South Dakota are frequently cited for having no state income taxes, making them attractive options for LLCs seeking minimal tax burdens.