LLC Costs: How Much It Costs to Form an LLC Today
When people think of forming a small business, they often just think about what their business will do and what it will sell. Something that is forgotten about is the legal structure of starting the business. A business that does not have the proper legal documents handy and a structure set can have problems like losing assets if there is a lawsuit or failing to be able to sell the company at costs due to not being able to transfer assets. While these may not be issues that you currently face – it is never too early to make sure your company is set up properly.
As far as LLC costs are concerned, there are two types: formation costs and ongoing costs. This article will outline both so that you can start your business off on the right foot.
LLC formation costs
Before getting into the legal side of your LLC, it’s a good idea to form an LLC operating agreement. This is an internal document that defines how the company will operate and its governance structure. It includes information on the management structure and profit-divide between partners.
Most states don’t require your company to have an operating agreement in order to get your certificate of formation. However, it’s a good practice to keep one prepared anyway for the success of your business in the future.
Once you have your operating agreement ready for your LLC startup, you should also arrange for a business bank account. This will be essential to cover all your business expenses as you start getting into the thick of the legal procedures surrounding forming your LLC (such as state filing fees and other additional fees covered below).
Filing your Articles of Organization
To legally establish your LLC, you must file a document usually called articles of organization. This is sometimes called filing the “certificate of organization”, “articles of incorporation” or just “filing the papers.” In most states, this refers to the Secretary of State.
Most states charge a filing fee for this, which ranges from about $50 to $100. This may be on the more expensive end in certain states. For example in Alaska, it’s $250.
Choosing and reserving your LLC name
The first thing you have to do to form an LLC is choose a name for your LLC. You can’t just pick any name, though. The name has to comply with your state’s LLC naming rules.
You have to choose a name for your LLC that isn’t similar to one that already exists. It has to be unique and in line with your business and what it stands for.
Reserving an LLC name is a purely optional step. It isn’t required to reserve your LLC name before filing your articles of organization so it’s totally left up to the business owner’s preference.
But should you choose to, you can reserve your LLC name in advance in almost every state for one or two months through a filing name reservation application.
The cost for this is usually minimal, anywhere between $10 to $50.
Fictitious business name application
You can operate your LLC under the name listed in your articles of organization. This is usually done when the owner doesn’t want to use a different name for his company.
But in certain cases, the owner may want to operate the business through a different name. This is where the fictitious business name comes in.
You’re required to register a DBA (“doing business as”) filing if you operate under a name other than the one listed in your articles of organization.
Depending on the state, the process (and costs) vary for fictitious business name applications. In certain states, you pay for filing one state-wide application through a state agency like the Secretary of State.
In other states, however, you have to file individual applications at each country level wherever you have a business office registered.
Other states also require you to publish your fictitious name in the local/legal newspaper.
The total cost for this can be anywhere between $10 to $200, or even more, depending on the state and process opted for.
Getting your business license
Obtaining a business license grants you the legal right to conduct your business operations in that area.
It is likely that you’ll need obtain a business license for your LLC from your city or county government. Business licenses are typically issued at the municipal level, so the costs involved will vary widely depending on where you’re planning to locate your business.
Again, this also varies state-wise. For example, Washington has state-wide business licenses but other states require county-level approvals depending on your areas of business.
The majority of states have local license requirements, meaning you’ll have to get one for each county or city government.
The cost to get a business license varies from $50 to $100.
LLC ongoing costs
Is your LLC established and open for business? Congratulations, but there are more fees you have to be aware of so that you don’t lose your legal right to do business in the designated locations.
Annual franchise tax
The annual franchise tax, also called annual LLC taxes, are a minimum tax you have to pay to the State regardless of how much your business earns that year. Therefore, it’s a sunk cost.
Currently, the state with the highest annual franchise tax is California. The rate is a whopping $800 per year.
Keep in mind in order to pay your state and federal taxes, you will have to get your Employer Identification Number (EIN) first.
On average though, the minimum tax rates vary from $100 to $400.
Annual report fees
A majority of state governments require LLCs to file an annual report with the Secretary of State every one or two years. This is done to make sure the LLC’s contact information remains up to date.
This report is also referred to as a biennial report, statement of information and periodic report.
The filing fee for this varies from $20 to $100.
Registered agent fees
No matter where your LLC is located, it’s mandatory for your LLC to have a registered agent for the service of process. This is an individual or third party who, in the case of the LLC being sued, will accept the legal papers.
Law states that any individual over 18 years of age can serve as an LLC’s registered agent as long as they live in that state and are a third party to the business. Most LLC owners opt to hire professional registered agent companies for this purpose.
These agencies charge an annual fee ranging from $100 to $300.
Business license renewal fees
Finally, you also have business license renewal fees to consider. This will ensure that your business has the continued legal right to operate in the designated jurisdictions.
License renewal fees usually vary from $20 to $100.
Other LLC costs
Apart from formation costs and annual/ongoing costs, there are some miscellaneous costs to consider as well.
Certain states like Arizona and New York require newly formed LLCs to announce their formation in the local newspaper. This is referred to as a statement of formation.
Publishing costs vary, anywhere from a low $40 to a substantial amount of $2,000, depending on the state.
Name reservation fee
In almost all states, you are given the option to reserve the name of your LLC one or two months in advance. And again, in almost all, it’s purely optional and left up to the business owner’s choice.
However, in Alabama, it’s compulsory to reserve your LLC’s name. This will cost you a fee of $10 to $28.
State LLC formation costs
To provide you an estimate of your LLC’s formation costs and ongoing LLC fees, here’s an expansive state-wide table.
Please note that these fees don’t include optional costs like reserving the LLC name. It also doesn’t include the local business licenses which vary depending on the local counties.
The below costs are representative of the mandatory legal costs.
|State||LLC Filing Fees||Ongoing LLC Fees|
|Alabama||$200||$10 Annual Report, $100 Annual Privilege Tax (minimum)|
|Alaska||$250||$100 (every two years)|
|Arizona||$50 (plus publishing costs from $60-$130)||$0 to $100|
|Arkansas||$45 online, $50 by mail||$150 Franchise Tax Report (annually)|
|California||$70||$800 – Franchise Tax (annually), $20 – Statement of Information (annually)|
|Delaware||$90||$300 Franchise Tax (annually)|
|District of Columbia (D.C.)||$220||$300|
|Georgia||$100 online, $110 by mail||$50 (annually)|
|Idaho||$100 online, $120 by mail||$0 (report due annually)|
|Indiana||$95 online, $100 by mail||Biennial report – $32 online, $50 by mail|
|Iowa||$50||$60 (biennial report)|
|Kansas||$160 online, $165 by mail||$55 (annually)|
|Maryland||$150 online, $100 by mail, + 3% service fee if credit card used||$300 (annually)|
|Minnesota||$155 online, $135 by mail||$0 (report due annually)|
|Mississippi||$50||$0 (report due annually)|
|Missouri||$50 online, $105 by mail||$0|
|Nebraska||$100 online, $110 by mail||$10 (biennial report)|
|Nevada||$75||$150 Annual List of Members & Managers|
|New Hampshire||$100||$100 (annually)|
|New Jersey||$125||$100 (annually)|
|New Mexico||$50||$75 (annually)|
|New York||$200 , + $50 for Certificate of Publication, + Newspaper fees||$9 (biennially)|
|North Carolina||$125||$200 (annually)|
|North Dakota||$135||$50 (annually)|
|Pennsylvania||$125, + publishing costs||$70 (decennial report)|
|Rhode Island||$150||$50 (annually)|
|South Dakota||$150 online, $165 by mail||$50 (annually)|
|Tennessee||$300 (minimum)||$300 (minimum)|
|Texas||$300||$0 report, Franchise Tax|
|West Virginia||$100||$25 (annually)|
|Wisconsin||$130 online, $170 by mail||$25 (annually)|
|Wyoming||$102 online, $100 by mail||$50 minimum (annually)|
Are LLCs expensive?
Compared to other business models out there, operating an LLC is definitely more expensive than a sole proprietorship. But it’s still less expensive than registering a corporation.
Many business owners feel forming an LLC is worth it due to the protection of limited liability that it provides. These are benefits that get passed on through the form of asset protection, tax benefits, and flexibility.
If you’re looking to cut costs, establishing an LLC yourself is the cheapest option you can go for. You can also hire a lawyer but this is the more expensive choice and can cost you thousands of dollars.
How much does it cost to open an LLC?
The cost of opening an LLC depends on the state your new business is located in. Depending on the type of business you operate, you may also have to follow specific state laws and get local licenses.
Are there yearly fees involved with LLCs?
LLCs do not have one-off costs. There are ongoing fees that have to be paid on a yearly basis. These include the annual franchise tax to the IRS and annual report fees (in certain states).
What are the benefits of an LLC?
The primary benefit for a limited liability company is the limited liability itself. All losses are limited to the capital invested in the business entity and owners do not not have to risk the loss of personal assets.
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