There is no doubt forming an LLC will cost you some money. How much it costs to form an LLC depends on the state where the LLC is formed and your business requirements. But in general, forming an LLC is cheaper than creating business entities like a corporation regardless of the state of formation.
While most states charge a flat fee for filing your LLC, there are some charges you may incur prior to and after forming your LLC. With all these put into consideration, this article will walk you through every cent you may expect to spend to set your LLC and keep running.
So, how much does an LLC cost? Read on to find out.
LLC Formation Cost
No matter the state you are forming your LLC, you must incur state filing fees. Preparation and filing of articles of organization is a mandatory requirement in every state and it is the main activity when an LLC.
The articles of organization are referred to as a certificate of organization, article of formation, or certificate of formation in some states. In most states, the state agency that deals with the filing of the certificate of an organization are the secretary of state.
The cheapest state to file articles of organization at the time of our reviews was Kentucky while the most expensive one was Massachussett. This information can help you figure out what you expect in other states. These are state filing fees, so if you hire a lawyer or use a service company, you have to pay them the service fees separately.
Other Cost Associated with Forming an LLC
In addition to the state’s limited liability company processing fees, there are several other optional filing costs you may incur depending on your business or your state’s requirement for setting up an LLC. These include:
Reserving an LLC name
Though it is not a mandatory requirement, it will be worth the expense as a key step when choosing your business. The good news, you can reserve a name for one or two months in most states at a reasonable fee before it is made available for filing. Some of the cheapest states to reserve a name include Alabama , and Iowa Some of the most expensive states to reserve a name include Pennsylvania .
Business licensing and permit fees
Depending on the type of your state or the type of company you are forming, you may need a federal, state, or local license/permit. Though most states have local license requirements, some states like Washington have a state-wide business license. This requirement will also add to your LLC formation charges.
Filing a Business Fictitious Name
If you don’t want to operate your LLC under the legal name listed on your articles of organization, you can file for a DBA. This is optional as well, and you can decide to stick with your original LLC name if you want.
To file a fictitious business name, you will have to pay a filing fee. DBA filing requirements vary from state to state. In some states, you will file a single wide application with the secretary of state. However, in other states, you will have to file the DBA name at the county level in the county where you have a business office. Whichever the case, it will add to state filing fees.
Some states such as Arizona, New York, and Nebraska require your new LLC to publish a statement in a local newspaper notifying the public about your formed LLC. Publication charges depending on the state and the newspaper used, but with all the factors put into consideration, expect something below 200 dollars.
Ongoing Cost to Run an LLC
Once you form an LLC, you will have to pay some annual fees to keep it running and maintain compliance with the state government. Failure may make your LLC lose legal rights to conduct business in that state.
Depending on the state, you may have to pay minimum annual taxes also known as an annual franchise tax. The franchise tax is paid regardless of how much you earn from the LLC business. California usually has the highest franchise tax.
Annual Report Fees
Most states require that you renew your LLC filing every 1 or 2 years. For that reason, you will be required by most states to submit an annual binomial report which includes, updating the name, ownership of the LLC, and address. The state fees must be paid along with the report or statement and depending on your state charges.
Registered Agent Fees
This is a mandatory requirement in every state. A registered agent is an individual or a business entity that receives legal documents on behalf of the company and forwards them to you. In most cases, the owner of the LLC or the family member will serve as the registered agent.
However, the best move is to hire a professional registered agent other than using a relative. A professional registered agent offers privacy to the LLC members.
With that said, any individual, 18 years and above, living in the state where you want to form your business can serve as your registered agent. An attorney or an online company offers great registered agent services.
LLC should have an operating agreement. An operating agreement describes how your limited liability company will be run, including how you handle decision making; how your profits and losses will be split among other common issues.
You can seek the help of an attorney or online formation service to file your articles of organization and create a customized operating agreement that meets your needs.
Depending on how you form your LLC, you will either pay for an operating agreement separately or have it included in your formation package. If you form an LLC by yourself, you will have to purchase an operating agreement online.
Obtaining an Employer Identification Number (EIN)
Obtaining an EIN is a free service offered by the Internal Revenue Service (IRS). There are ways you can obtain EIN but the most common one is by applying online through the IRS website.
Employer Identification Number or EIN helps in many ways including, obtaining a business loan, register a business, open a business bank account, and much more. For that reason, it is as important for your company as social security as your personal life.
States LLC Filing And Recurring Fees
To be more specific, let’s find out the cost of an LLC in every state. These fees don’t include optional services such as professional registered agent, name reservation, fictitious business name, or local business licenses.
|State||Filing fees ($)||Ongoing Fees ($)|
|Alabama||200||100 -200 (Including annual report and annual tax)|
|Alaska||250||250 (every 2 years)|
|Arizona||50 (publication fee not included)||0 to 100|
|Arkansas||45||150 (franchise tax report)|
|California||70||20 (annual statement of information)|
800 (annual franchise tax)
|Delaware||90||300 (annual franchise tax)|
|Indiana||95||35 to 50 (biennial report)|
|Iowa||50||60 (biennial report)|
|Minnesota||135 or 155 (mail or online filing respectively)||0|
|Missouri||50 or 105 (online or mail filing respectively)||0|
|Nebraska||105||10 biennial report|
|New Hampshire||100||100 annually|
|New Jersey||125||75 annually|
|New York||200 excluding publishing cost||9 (biennial report)|
|North Carolina||125||200 annually|
|North Dakota||135||50 annually|
|Pennsylvania||125||70 decennial report|
|Rhodes Island||150||50 annually|
|South Dakota||150||50 annually|
|Texas||300||0 report franchise tax|
|West Virginia||100||25 annually|
|Wisconsin||120 or 170 (online or email service respectively)||50 annually|
|Wyoming||100 or 102 (Mail or online respectively||50 minimum annually|
The Cost for Forming an LLC in Another State
While forming an LLC in a state with a low filing fee or popular business-friendly states like Nevada, Delaware, and Wyoming sounds a good idea, you must file your company as a foreign LLC, which may cost more. This is because you will have to do double paperwork and additional maintenance fees as well.
For example, you will require another registered agent and carter the annual fee, you will have to pay the annual renewal fee on both sides, among others. For that reason, it is best to form an LLC in your home state or the state where you will be transacting your business.
However, if you are investing in a business located in another state, it is best to form your LLC there. In such a case, you must consider a state with low filing and ongoing LLC fees. Examples of such states include Arizona, Colorado, Mississippi, Kentucky among others.
The main cost of forming an LLC is filing articles of organization with the secretary of state. Every state charges a fee to file articles of organization with the secretary of the state, but the amount varies from state to state.
However, you can expect additional costs if you receive expedited filing, reserve a business name, do business in multiple states, hire a registered agent or get a legal service. All in all, forming an LLC in any state is cost-effective and is worth it.
Frequently Asked Questions
All the states require you to pay annual fees to keep your business in compliance with the state. Apart from the annual fee, there are other per-year charges that you may incur depending on your state requirement. For instance, LLCs organized in California must pay annual taxes of $800.
The cost of forming LLCs in California is only around $70 state filing fee. What makes California an expensive state to form an LLC is its annual franchise tax which is charged at $800.
Whether you do it yourself or you use a formation service that offers free service, you can’t start your LLC without paying any fee. All the states in the US charge LLC filing fees and some ongoing fees.
One of the biggest advantages of forming an LLC is tax flexibility. Normally, LLCs are treated as a pass-through entity for tax purposes. However, you can elect to be taxed as either C-Corp or S-Corp, to avoid self-employment taxation.
You don’t need to seek the help of an attorney to form an LLC. You can prepare the legal paperwork by yourself or seek the help of an online service. The good news is, DIY or online formation services are much cheaper than hiring an attorney.
The most obvious advantage of starting an LLC is liability protection. In most cases, business owners form an LLC to protect their assets from being used as collateral to cover company debts, lawsuits, and other obligations. However, there are several other advantages including tax flexibility and less paperwork.
Hiring a lawyer will cost you between $1,000 and $1,500. This is much higher than seeking the help of an online formation service or undertaking the process by yourself.
LLCs do not need to have members, but members can choose to be employees. LLCs have a lot of flexibility in terms of operation.
+ 3 sources
- Getincnow.com. (2021). Alabama Company Name Reservation. [online] Available at: https://www.getincnow.com/Alabama-Company-Name-Reservation.php [Accessed 20 May 2021].
- Pate, P. (n.d.). APPLICATION FOR RESERVATION OF NAME. [online] . Available at: https://sos.iowa.gov/business/pdf/635_0051.pdf [Accessed 20 May 2021].
- PENNSYLVANIA DEPARTMENT OF STATE BUREAU OF CORPORATIONS AND CHARITABLE ORGANIZATIONS. (n.d.). [online] . Available at: https://www.dos.pa.gov/BusinessCharities/Business/RegistrationForms/Documents/Updated%202017%20Registration%20Forms/Miscellaneous%20Forms/15-208%20Reservation_Transfer%20of%20Reservation.pdf [Accessed 20 May 2021].