Determining the LLC cost 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.
The total process of setting up an LLC requires a lot of paperwork, fees, and time.
It's important for any entrepreneur starting their own business to understand the potential LLC costs involved before taking that next step. Here are some major expenses you should be aware of.
Name Reservation Fees
The first you have to do when forming an LLC is to come up with a name for your business.
Depending on the state where you want to register your limited liability company, you will have to acquire information about naming requirements (prohibited terms, for example).
You can do this through your Secretary of State's official website.
You can also reserve your desired business name for up to 12 ahead in some states. 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 do your research on naming requirements before you make an operating agreement or file the request.
Some states limit the number of days that you can keep your reserved business name, while others do not have any naming requirements at all.
State Filing Fees
State LLC filing fees are the fees paid to the state in order to file 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 found 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 that will handle these sensitive papers for you and provide appropriate legal advice.
The total filing fees means you will need someone to file an Articles of Organization with the State. A registered agent service provider will do this for you.
The Cost of Registered Agent Service
The first thing you'll need to do in order 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 really depends on where they're located and what services you need, so it's best to contact them directly before signing up with them 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 a registered agents so you can avoid this cost altogether.
However, if you have no experience in these legal matters, a professional, registered agent is always the best option to provide you with legal or tax advice.
LLC Operating Agreement Cost
To start the process of setting up an LLC, you need an Operating Agreement that 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 in your ability to create an operating agreement yourself, 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 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.
Permits and Licenses
The cost of your LLC formation may also depend on the type of your business. 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 still need to check with the State Board.
It's not uncommon for a business to need several licenses and permits to operate, depending on what type of business it is.
There are many factors that 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. 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 they can sell alcoholic beverages.
Permits and licenses are the big-ticket items in LLC formation that need to be budgeted for, but there is more cost involved than these permits alone.
How much you pay will depend on the type of your limited liability company, how large it is, and wherein 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 with its appropriate state.
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 tax, which is a yearly payment on the right to conduct business there.
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 charge less than $30, while others can be as much as $800, with most being in the $100 range.
The states that require no annual fee are Arizona, Idaho, Mississippi, Missouri, New Mexico, Ohio, and South Carolina.
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, and these 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, and the cost ranges between $50 to $800.
Whether it's to save on 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 their advantages when all is said and done, most people will end up paying more for administration fees as well as 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 a better idea to form the company in the state where you reside--you'll save yourself considerable time and money.
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 be able to get by with paying their annual state filing fee.
An LLC which handles lots of money in yearly revenue will need to pay more for ongoing fees like property taxes, insurance, or payroll taxes.
When you set up the LLC, you will have to renew it and pay annual fees after that. LLC renewal fees range from $0-$500 yearly. Talk to a professional registered agent and ask about business license renewal fees and other ongoing business costs.
What Is the Cheapest Way to Get an LLC?
The most affordable way to form an LLC is to file the forms on your own with a fee corresponding to those of the state. LLC's are often organized via Articles of Organization.
You can save costs by completing the filing yourself since all you need to worry about is the filing fee. Forms are available in your Secretary of States' office or on their website.
Some states offer the forms online, allowing you to fill out all of your paperwork electronically.
LP forms are straightforward and simple to complete, which means you won't have a hard time getting the hang of it.
What Is the Least Expensive State to Form an LLC?
The least expensive states for LLC formation 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?
You can not form an LLC for free, and any party offering LLC formation services for free is a scam.
It's possible to form an LLC without a lawyer, but you will need to be prepared for some out-of-pocket costs because there are required fees associated with obtaining one.
In many states, the filing fee can range from $50 and upwards of $250.
You'll also need to set up your custom operating agreement, and that could cost anywhere from nothing at all if it's a simple agreement to around $300 for a more involved one.
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 as long as they follow the applicable state law for forming one.
As a business owner, if you own an LLC and are earning money, the IRS taxes your income at pass-through.
However, if you claim deductions on things like business travel and promotion but fail to make any profit, then the IRS is likely to audit your finances and expenses.
What Happens if My LLC Expires?
A company's articles of organization usually state the duration of the company. They can specify a date when an LLC expires or leave it indefinite.
If an LLC does not have a specified expiry date, it will continue in existence until dissolved or wound up.
If you forget to renew the state for the LLC, it may be listed as inactive or administratively dissolved in public records.
This means that the company has been placed on this list because of non-payment of State fees.
"Inactive" means that the LLC is still active, but the state suspended it for non-payment of fees or because there are other issues.
Meanwhile, if you get a renewal notice and pay it before it expires, your company can avoid going into delinquent status with the state.
The penalties for not paying or paying late can be significant. The client may lose his company name and, with it, his corporate identity.
This move potentially brings LLC at risk of being lost to another company.
What Can You Write Off on Taxes With an LLC?
LLC taxes you can write of (the so-called Tax Write-Offs) are legal fees, professional services for accounting and attorneys, as well as any other types of costs.
LLCs can reduce their tax obligations by claiming write-offs for business-related expenditures. These expenditures include rental expenses, advertising, travel, and shipping costs.
A single-owner LLC is classified under the IRS as a sole proprietorship, on which taxes are filed in accordance with individual tax regulations.
Should more than one member be involved in an LLC, the IRS would classify it as a general partnership and tax it accordingly (separately from its members).
The expenses may be deducted from the LLC's taxable income to reduce its tax liability or offset other types of business-related credits such as depreciation.
Does Having an LLC Help With Taxes?
A limited liability company can help you avoid double taxation if it's structured as a pass-through for tax purposes.
Membership interests in the LLC may be depreciated or amortized and may also generate credits that offset income from other sources, such as capital gains or unemployment compensation.
The members are entitled to take deductions on their personal tax returns.
While a company might limit the liability of its owners, an LLC has a limited legal separation from its owners.
For income purposes, the business is considered a "pass-through" entity because profits flow to their owners, limiting what each backer owes in personal taxes on those funds.
Depending on the members of an LLC (single-member or multi-member) and whether it wants to be treated differently for tax purposes (like a C corporation or an S corporation), you need to pay different taxes to form an LLC.
Is It Worth It to Get LLC?
The primary benefits of forming an LLC typically fall under personal protection and taxation.
Owners are not held liable for the company's actions, which makes managing their own finances easier to handle.
Pass-through taxation also means all income is treated as if the business was a sole proprietorship, reducing the amount of confusing paperwork required when filing taxes on your yearly return.
Also, one great thing about owning an LLC is the flexibility to expand your company in terms of additional members or investors.
It's also more economical to file taxes as an LLC because you have the option of deducting your business expenses.
Is an LLC Worth It for a Small Business?
Forming a Limited Liability Company is the best way to protect your personal assets and take advantage of unique tax breaks.
Additionally, it establishes a centralized structure for your small business so you can purchase insurance on behalf of it. Hiring a registered agent might strain your finances a bit, but their long-term benefits will pay dividends.
The cost of forming an LLC varies by state, and it 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.
In any case, you should make an informed decision before choosing to form an LLC and weigh the pros and cons of doing so. Consider talking to a registered agent if you lack experience on legal documents, such as the operating agreement costs.