Determining the LLC startup costs can be challenging. How much you will have to pay for your LLC depends on the state that you are in and what type of business entity you want to set up.
As an experienced entrepreneur with a background in business consulting, I recognized the need for clarity on LLC expenses.
After extensive research and consultations with legal experts, I have compiled a comprehensive article on LLC formation costs to provide an understanding of the fees involved.
In this article, I will discuss various filing fee obligations and the overall costs of forming an LLC.
Quick Summary
- The cost of starting an LLC can range from a few hundred to a few thousand dollars
- The cost varies depending on the state and type of business entity
- Key expenses include name reservation fees, state filing fees, and registered agent service fees among other costs
Fees/ Costs Associated with Forming an LLC
Forming an LLC entails essential fees and costs. These expenses are vital for establishing a legally recognized business structure.
These charges include:
1. Name Reservation Fees
The first step to forming an LLC is to come up with a name for your LLC business.
Depending on the state where you want to register your limited liability company, you must acquire information about naming requirements (prohibited terms, for example).
You can do this through your Secretary of State's official website.
In some states, you can reserve your desired business name for up to 12 days ahead. It will cost you an additional fee, depending on the state.
For example, the name reservation fee is $40 in Texas, $10 in California, and $28 in Alabama.
Make sure to research naming requirements before you make an operating agreement or file the request.
Some states limit the number of days you can keep your reserved business name, while others do not have any naming requirements.
2. State Filing Fees
State LLC filing fees are paid to the state to file LLC Articles of Organization with the Secretary of State.
State filing fees vary by state but typically range between $100 and $800, depending on the location.
The cheapest state fees are in New Mexico, Arkansas, Iowa, Michigan, Indiana, Arizona, Colorado, and Hawaii ($50).
The most expensive LLC filing fees are in Tennessee, Alaska, New York, Massachusetts, Washington, and Florida ($250-$500).
The best thing you can do is hire a business lawyer or a law firm to handle these sensitive papers and provide appropriate legal advice.
The total filing fees mean you will need someone to file an Articles of Organization with the State. A top registered agent service provider can do this for you.
3. The Cost of Registered Agent Service
The first thing you'll need to do to form an LLC is to find a registered agent to serve on your behalf. Registered Agent fees depend on where you live and the size of your company.
How much you pay for your registered agent service depends on where they're located and what services you need, so it's best to contact them directly before signing up to find out how their pricing works.
Generally speaking, you can expect to pay anywhere between $40 to $150 for the registered agent service.
Keep in mind that you or LLC members can also act as registered agents so you can avoid this cost altogether.
However, if you have no experience in these legal matters, a professional, LLC registered agent is always the best option to provide legal or tax advice.
4. LLC Operating Agreement Cost
An LLC Operating Agreement will govern how your company is operated.
The amount you need for an operating agreement can depend on the complexity of your business and the number of members in your LLC.
An operating agreement should contain all of the rules that govern the day-to-day operations, member responsibilities (such as managing finances), how profits are distributed, and the process for making decisions.
If you are not confident creating an operating agreement, many templates can be found online or by a business lawyer or law firm.
The price of these templates ranges between $40 to $200, although you can find some free ones too.
It is important to make time while setting up the LLC so that it will function properly as soon as possible.
The total cost of an operating agreement should range from a few hundred dollars to a thousand depending on the complexity of your business.
5. Permits and Licenses
The cost of your LLC formation may also depend on your business type. Certain industries require additional business licenses and permits, and their costs vary from state to state.
Although some states don't require a special business license, you must check with the State Board.
It's not uncommon for a business to need several licenses and permits to operate, depending on the type of business.
Many factors go into this determination, including location, type of business, and what it sells or does that determine whether a license is needed.
While not generally required for a business license, occupational licensing can be essential for some jobs.
Occupational licensing is overseen at the state level, but it may also vary by profession or location [1]. For years now, accountants have been subject to both state and local requirements before offering their service.
Similarly, liquor regulators will need occupational licenses before selling alcoholic beverages.
Permits and licenses are the big-ticket items in LLC formation that need to be budgeted for, but more cost is involved than these permits alone.
6. Annual Fees
How much you pay will depend on the type of your limited liability company, how large it is, and the country it operates.
An annual fee is typically paid to state agencies such as the Secretary of State or the Department of Commerce.
One of the most important tasks for any small business is maintaining the Annual Report appropriately.
Most states charge a fee for filing it, though this cost varies. Filing it as timely as possible will help keep your LLC in Good Standing and protect its liability protection.
A few states charge an annual franchise or corporate income tax, a yearly payment on the right to conduct business there [2].
You might not have considered the annual franchise tax when you form an LLC, but many states charge a yearly tax for the privilege of having an LLC.
In addition to requiring this fee every year, if the annual franchise tax is not paid on time, a penalty may lead to LLC dissolution.
Some states allow you to pay taxes less than $30, while others can be as much as $800, with most in the $100 range.
The states that require no annual fee include:
- Arizona
- Idaho
- Mississippi
- Missouri
- New Mexico
- Ohio
- South Carolina
7. Foreign LLC Fees
Setting up a foreign LLC in the US can be a complex process, even with a registered agent.
There are different fees for each state, which may vary depending on which type of entity you set up, whether it has one or more shareholders, etc.
The costs will depend largely upon where your business operates from.
On average, foreign LLC formation is more expensive than registering a domestic LLC, ranging between $50 to $800.
Whether it's to save on federal taxes, boost the chances of getting a business loan, or have greater access to benefits and permits, there are reasons why some might consider forming an LLC in another state.
However, while those other states may have advantages when all is said and done, most people will pay more for administration and annual state fees than they would if the business was located in their home state.
Instead of forming your LLC in another state, it's better to form the company in the state where you reside. You'll save yourself considerable time and money.
8. Ongoing Fees
Ongoing costs for LLCs will vary depending on the type of business and how much work they do.
For example, a limited liability company that is less likely to have employees or make many transactions may get by paying their annual state filing fee.
An LLC that handles lots of money in yearly revenue will need to pay more for ongoing costs like property taxes, insurance, or payroll taxes.
When you set up the LLC, you must renew it and pay annual fees afterward. LLC renewal fees range from $0-$500 yearly.
Talk to a registered professional agent about business license renewal fees and other ongoing business costs.
“Having opted for an LLC setup, I can attest that it is a simpler and more cost-effective formation process compared to corporations. That makes it an ideal choice for many start-up entrepreneurs like myself.”
- Max Shak, CEO of nerDigital
How Much Does It Cost to Start an LLC - Choose Your State:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
- Wyoming
FAQs
What are the Least Expensive States to Form an LLC?
The least expensive states to form an LLC are Oklahoma, Arizona, Iowa, Colorado, Arkansas, Michigan, and Mississippi, all of which have an LLC formation fee of $50.
In contrast, the most expensive states for LLC formation are Massachusetts, Connecticut, and Nevada ($400-$500).
Is LLC for Free Legit?
LLC for free is not legit, and any party offering LLC formation services for free is a scam. In many states, the filing fee can range from $50 to $250.
Does an LLC Have to Make Money?
An LLC does not need to make any money to be classified as an LLC. Small business owners can register their company as an LLC if they follow the applicable state law for forming one.
If you own an LLC and earn money, the IRS taxes your income at pass-through.
What Can You Write Off on Taxes With an LLC?
You can write off (the so-called Tax Write-Offs) legal fees, professional services for accounting and attorneys, and any other costs on LLC taxes.
LLCs can reduce their tax obligations by claiming write-offs for business-related expenditures. These expenditures include rental expenses, advertising, travel, and shipping costs.
Is It Worth to Get LLC?
It is worth getting an LLC. The primary benefits of forming an LLC typically fall under personal protection and taxation.
LLC owners are not held liable for the company's actions, which makes managing their finances easier to handle.
LLC Formation Cost
The cost of forming an LLC varies by state and depends on many other factors, such as the filing fee for legal documents.
How much you spend on forming your LLC will depend on company structure, tax jurisdiction, and incorporation complexity.
The total cost typically ranges from a few hundred to a few thousand dollars. It is essential to consult with a qualified online legal services or business advisor to understand the specific requirements and costs associated with forming an LLC in your jurisdiction.
References:
- https://obamawhitehouse.archives.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf
- https://www.investopedia.com/terms/f/franchise_tax.asp
