How much does it cost to start an LLC?
- The cost of forming an LLC depends on which state you’re in and if you form the LLC without the help of a third-party formation service
- Some of the main costs you can expect to pay include initial state filing fees and annual reporting fees through your state
- An LLC allows you to avoid double taxation and gives you personal liability protection in the event your business gets sued
You have a winning business idea and are preparing to put it in action. But before you open your business, you’ll need to form a legal business entity.
A limited liability company (LLC) is easy to form and gives small business owners benefits like personal liability protection and pass-through taxation. LLC formation also limits your startup costs if you do it yourself. However, there are several factors you should consider that will affect how much you’ll need to pay.
This guide explains limited liability companies and the benefits of choosing this business entity. You’ll also learn how to form an LLC and get an answer to the question, “How much does it cost to start an LLC?”
What is an LLC and what are the benefits?
A limited liability company is a business structure that takes some of the most beneficial aspects of other business entities—like sole proprietorships, partnerships, and corporations—and combines them into one. Most notably, you protect your personal assets in the event of legal action and you avoid double taxation.
Personal liability protection
Like corporations, LLCs offer personal liability protection. This means that if your company gets sued, your personal assets are protected, and you avoid any financial liability. Sole proprietorships and partnerships do not offer the same protection.
Corporations are taxed on both earnings at the business level and on personal tax returns. This is known as double taxation. LLCs allow pass-through taxation, which means profits go directly to you. You would then report any earnings on your personal tax form instead of filing two separate tax returns. As a result, you can retain more earnings because you avoid double taxation.
Easy to start
Creating an LLC on your own is a quick process that’s relatively simple to do. In comparison to C corporations, forming an LLC requires little paperwork. You also avoid inconveniences like being required to have annual meetings where you record meeting minutes or assign formal officer roles.
LLCs are also very flexible. You can form an LLC as a single member or create a multi-member LLC. You can even appoint a manager who runs your company on behalf of the LLC members.
How much does it cost to start an LLC?
The cost of starting an LLC depends on several factors. Each state has its own fees associated with forming an LLC. The overall cost also depends on whether you register your small business on your own or through a third party. If you form an LLC on your own, it will cost much less than using a lawyer or third-party service.
So how much does it cost to start an LLC? You can expect to pay around $130 if you file on your own. Using a lawyer will cost between $1,000 and $1,500. An online incorporation service typically costs between $100 and $900.
Whichever route you take, you will be responsible for initial formation costs and ongoing annual costs. Here’s a breakdown of the various fees:
There are three ways you can form an LLC. You can do it yourself, hire a business lawyer, or use an online incorporation website.
Forming an LLC on your own is free and quite easy to do. It’s also the cheapest option. However, there are filing fees, annual costs, and other fees you’ll need to pay (more on this below).
You can also choose to hire a lawyer to handle all of the paperwork on your behalf—a convenient option that saves you time but is also the most expensive. It will cost anywhere from $1,000 to $1,500, not including the remaining filing fees and annual costs.
Your third option is using an online incorporation website. Similar to using a lawyer, online incorporation sites will handle the entire incorporation process. The difference is that you’ll be paying a fraction of the price if you were to hire a lawyer. These online services cost anywhere between $99 and $900.
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State filing fees
The first step of creating an LLC is filing the Articles of Organization through a state agency, such as the Secretary of State. This document is also known as a Certificate of Organization, Certificate of Formation, or Articles of Formation, depending on which state you’re in.
The Articles of Organization is the legal document that establishes your business in your state. LLC filing fees will vary from state to state, but are typically between $40 and $500.
Before filing, the name of your business must be available. Your unique business name is officially reserved when you file the Articles of Incorporation, preventing other businesses from using the same name. You can also decide to reserve your company name before filing.
Business name reservation isn’t necessary in most states, but you can pay less than $150 if you want to reserve a business name beforehand.
A registered agent is someone who accepts any legal documents on your behalf. For the most part, registered agent services are optional. If you need a registered agent, it will cost between $100 and $300 per year.
You can act as your own registered agent at zero cost. You can even have a family member be your registered agent. The only time a registered agent is required is when you don’t have a street address in the state where you’re forming your business.
An Operating Agreement lays out how your company will operate. It details how your company is structured, management responsibilities, and the purpose of the business. Operating Agreements are optional, but they’re a valuable document to have in place if there are any disputes between LLC members.
If you’re filing on your own, your Operating Agreement is free. You can also purchase pre-populated Operating Agreement templates online, which cost between $50 to $200. The cost of an Operating Agreement should be included in the overall price if you’re using a lawyer or online incorporation website.
Federal Tax ID Number (EIN)
A Federal Tax ID—or Employer Identification Number (EIN)—is required to open business bank accounts and start doing business. This number is also used for filing taxes, obtaining financing, and applying for business credit cards.
You can apply for an EIN for free through the IRS website. It’s an easy process that doesn’t cost anything, so don’t get fooled into paying someone else to do it for you.
Once your business is up and running, you’ll need to file Annual Reports to your state. Annual Reports ensure that your business is in good standing so you can continue to operate.
Most states require an Annual Report and will charge you an annual fee. These fees vary by state, but the average cost is around $90 per year.
You may need to pay additional fees depending on the nature of your business or the state you’re in. Some examples are business licenses, permits, or publication fees.
For instance, a restaurant will require a food service license, certificate of occupancy, and/or a signage permit. You may also need to pay for a liquor license or music license depending on the type of business you have.
There are other kinds of potential additional costs, such as publication fees. In some states, like New York, Arizona, and Nevada, you are required to post a legal ad in your local newspaper announcing the launch of your business. This includes a newspaper fee and a certificate of publication fee.
Launching your LLC
Limited liability companies are some of the most popular business entities that small companies choose, and there are plenty of reasons to consider an LLC.
Forming an LLC gives you personal liability protection, so your personal assets will never be at risk. You can also receive the benefit of pass-through taxation, allowing you to avoid double taxation.
How much does it cost to start an LLC? Typically, it’s $130 to file it yourself. However, that price can soar to hundreds (and even thousands) of dollars if you use a lawyer or online incorporation service. There are also other one-time and ongoing fees, so be sure to know the specific requirements of the state where you’re doing business.
Once you’ve obtained an LLC and launch your company, add your business to Yelp to start receiving exposure and earning your first customers.
The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.