How Much Does It Cost To Start An LLC?

What is LLC?

An LLC stands as an invaluable asset for entrepreneurs, offering robust protection against business liabilities, shielding owners from personal responsibility, and allowing for tax adaptability. Despite its potency, the initial expenses for launching an LLC are notably affordable compared to other business investments.

These costs can be categorized into two sections: startup expenses and ongoing maintenance charges. The startup costs of an LLC primarily hinge on the state of registration, while there exist continuous expenses for upholding the LLC. Here’s an overview of what you should grasp regarding the financial outlay for establishing an LLC.

LLC Costs: Quick Overview

The costs linked to establishing and maintaining an LLC can accumulate. Managing the process independently can help keep expenses at a minimum. Here’s an outline of the expenses involved in starting an LLC:

• Filing fees: $35–$500
• Operating agreement: $0–$600
• Publication: $40–$1,500
• DBA fees: $10–$100
• Registered agent: $0–$300
• Business license fees: $50–over $1,000
• Annual report fees: $10–$800
• Total: $150–over $4,000

Additionally, one should factor in other expenses, such as initial setup and ongoing operational costs for the LLC, like website development, marketing endeavors, and employee-related expenditures. Taxes also play a role, depending on the profitability of the LLC.

LLC Costs: Startup

According to SiSu Freedom’s research, creating and filing the necessary legal documents to form your LLC incurs various fees. Additionally, registering your LLC with state and local governments will incur additional costs. Ensuring you have all necessary licenses, degrees, and certifications authorized by local, state, and federal authorities is important. Ultimately, how much you spend depends on your willingness or ability to handle these tasks independently.

Startup Cost Varies Depending on the Formation Method

When you set up an LLC, you’ve got three choices: DIY, using an online formation service, or hiring an attorney. If you go the DIY route, your main concern will be paying filing fees when you submit documents to the state.

If you opt for an online formation service for basic filing, you’ll face an extra cost of $39 to $79. This price can vary if you decide to upgrade your formation package or if you want the service to act as your LLC’s registered agent. Choosing to hire an attorney typically involves a flat fee ranging from $1,000 to $1,500, depending on how intricate your business is and the state where you’re establishing the LLC.

LLC Name Reservation

Regular Fee: Single payment ranging from $10 to $140.

Whether you’ve already settled on a business name or are in the initial stages of brainstorming, reserving a name beforehand can prevent its being taken before you file the articles of organization for your LLC. The expenses and duration of name reservation differ based on the state. For instance, in Alabama, LLCs need to reserve a business name for $10, whereas Florida doesn’t provide name reservation services.

Filing Fee

Typical Cost: Single payment ranging from $50 to $150.

The filing fee covers the state’s official processing and submission of your LLC application, which typically includes the LLC organization document (commonly known as the articles of organization) and, in certain states, may involve your LLC’s operating agreement. This fee varies by state, with the lowest cost being $40 (in Kentucky) and the highest reaching $500 (in Massachusetts). The filing fees in most states fall within the range of $50 to $100.

Operating Agreement

Average Cost: Ranging from $0 to $200.

An operating agreement outlines the intricate workings of an LLC, encompassing both minor and major operational aspects and defining relationships among members and the LLC. Although only a few states mandate the filing of an operating agreement during formation, it’s prudent business practice to have one, even if it’s not obligatory in your state. Crafting this agreement can be done at no cost using an online template or from scratch. Alternatively, you can employ an online formation service or hire an attorney to draft the document for your LLC.

Registered Agent

Typical Cost: Ranging from $0 to $300.

A registered agent is an individual appointed by the LLC to receive crucial financial and legal documentation on behalf of the company. This designated agent must have an address within the state where the LLC is established and must be reachable by the state for official notifications. Every state mandates that an LLC maintains an active agent on file.

You have the option to act as your LLC’s registered agent at no cost, or you can enlist a registered agent service or an attorney for this role. If you opt for an online service to set up your LLC, certain companies offer a complimentary registered agent service for the initial year and charge between $50 and $300 annually thereafter.

EIN Application

Average Cost: Ranging from $0 to $99.

An employer identification number (EIN) is a unique identifier issued by the IRS to a company, utilized specifically for federal tax payments. LLCs with multiple members or employees must obtain an EIN, yet even those not mandated to have one should contemplate obtaining it.

Obtaining an EIN becomes necessary if your LLC intends to hire employees, engage in contracts with vendors, or open business bank accounts. Applying for an EIN is free via the IRS website, although some formation services offer to manage the application process on behalf of your LLC for an extra fee.

LLC Costs: Maintenance

Following the payment of the initial startup expenses for your LLC, it’s essential to keep up with continual costs such as taxes, yearly filings, licensing fees, and any compliance services offered by an online formation company, if you’ve enlisted their services.

Annual Reports

Typical Cost: Ranging from $0 to $800.

Most states mandate LLCs to submit an annual or biennial report to the secretary of state, ensuring updated contact and financial information. If required, submitting this report might be free or could entail a processing fee, often around $50. Some states forego the report but might impose a business tax, commonly termed an “annual franchise tax,” in addition to other state taxes. Certain states may necessitate both report filing and tax payment for LLCs.

In almost all states with annual or biennial reports or tax requirements, non-compliance carries significant consequences. Failure to meet these obligations may result in hefty late fines upon eventual submission or potential dissolution of the LLC. Some states initiate LLC dissolution proceedings after a year of non-compliance. The specific timeline and late fees vary by state.

Business Licensure

Average Cost: Varies by state and business type.

While most states don’t require a statewide business license for LLC operations, many counties demand local licensure to conduct business within their jurisdiction. This implies that companies operating across multiple counties may need licenses for each specific area of operation.

Additionally, there might be specific categorical licenses essential for certain businesses, such as a liquor license or food and beverage permit for establishments like bars or restaurants. These costs remain consistent irrespective of the business type and typically amount to around $50, necessitating renewal either annually or biennially.

Taxes

Average Cost: Varies by state and business focus.

LLCs function as pass-through tax entities, implying that the LLC itself isn’t liable for taxes. Instead, the LLC’s income and liabilities are transferred to its members, who then handle the relevant taxes annually via personal tax returns. Consequently, the taxes your LLC incurs depend on factors such as your business’s specialization, the presence of income tax in your state, and the annual earnings or losses of your LLC.

Compliance Services

Typical Cost: Ranging from $0 to $300

Should your LLC opt for an online service as its registered agent or for compliance assistance, this becomes an additional ongoing expense. For instance, certain companies, such as LegalZoom, provide a compliance calendar subscription ($69/year) that sends alerts for reports and tax deadlines, aiding your LLC in staying organized and compliant.

Forming an LLC in Your State

Typically, there are separate costs and prerequisites associated with forming an LLC in specific states. Explore the guides created by SiSu Freedom to understand the LLC formation process in your specific state.

Start an LLC Online Today With ZenBusiness

Taxes

Average costs: Vary by state

Similar to individuals or other entities, LLCs are liable to taxation. The federal government doesn’t directly levy taxes on the LLC itself; instead, taxes are collected from the owners based on pass-through income derived from profits. However, LLCs can deduct certain startup expenses, which can amount to up to $5,000. These expenses may include attorney fees, market research, office space, equipment, and more.

In most states, LLC profits are taxed similarly to federal taxation, where profits pass through to members’ personal tax returns. Nonetheless, some states impose mandatory LLC franchise taxes. For instance, Delaware charges a $300 franchise fee, while California imposes a minimum annual franchise tax of $800.

At the state government level, LLCs might also encounter reporting fees. The specific fees vary among states but tend to average around $100 annually.

Registered Agents

Average costs: Ranging from $0 to $300

A registered agent serves as the primary liaison between the LLC and the state. This individual or entity accepts legal documents and mail on behalf of the LLC and handles the service of lawsuits. Any adult residing in the LLC’s registered state and available during business hours can act as a registered agent. This flexibility means businesses may not face any expenses in appointing a registered agent. However, certain service providers offer registered agent services for a fee ranging from $100 to $300 annually.

Business License Fees

Average costs: Vary based on license type

The expenses linked to obtaining a business license for an LLC can fluctuate due to several factors. Here are elements that influence the fees related to LLC business licenses:

1. Location
2. Business type
3. License duration
4. LLC revenue
5. Multi-level licensing

Certain permits and licenses tend to be more expensive due to intricate regulatory demands or the nature of specific business activities. Here’s a rundown of some of the pricier business licenses:

1. Liquor license: Particularly in regions with high demand for alcohol-related businesses, liquor licenses can range from several hundred to several hundred thousand dollars.
2. Casino license: Operating a casino or gambling establishment can rack up licensing and regulatory expenses that may reach millions of dollars, depending on your jurisdiction. For instance, Nevada’s Operator of Interactive Gaming License costs $500,000 for the initial two years.
3. Environmental permits: Industries engaged in heavy manufacturing, mining, or activities with significant environmental impacts often require expensive permits to comply with environmental regulations, leading to accumulating costs over time.
4. Healthcare facilities: Establishing and managing healthcare facilities such as hospitals or nursing homes typically involves substantial licensing fees and stringent regulatory compliance.
5. Transportation and trucking: Commercial transport companies managing extensive truck fleets need various permits and licenses, incurring fees and compliance costs that escalate swiftly.

To accurately gauge your LLC’s licensing fees, reach out to your local city/county government and state business regulatory agency. They can furnish details on required licenses, associated costs, and any specific requirements pertinent to your business type.

Annual Report Fees

Average costs: $10 to $800

State filing fees stand as the primary expense linked to annual reports, varying significantly by state. These fees range from zero to several hundred dollars, sometimes more, contingent on an LLC’s revenue or member count. It’s crucial to note your state’s annual report deadline; missing it can result in late fees, penalties, administrative dissolution, or the loss of limited liability protection.

Updating your LLC’s information might require amending it through the annual report or filing a separate amendment. Changes such as hiring a new registered agent, altering member structure, or updating the business address could each carry separate fees.

Foreign LLCs registered beyond their home state might necessitate filing annual reports in every jurisdiction where they qualify as foreign LLCs. Each state imposes distinct filing fees for this process.

If your LLC loses good standing due to failure to file annual reports and you later opt for reinstatement, additional fees for reinstatement may be applicable.

Frequently Asked Questions (FAQs)

Is it possible to set up an LLC for free?

The fee to register an LLC fluctuates depending on the state, but there exists a registration fee in each state. Therefore, despite certain companies advertising “free” LLC formation, this typically implies that the company assists in completing the LLC paperwork without charging a service fee. However, it’s important to note that you’ll still be accountable for covering the state’s filing fee.

What are the benefits of filing an LLC?

Numerous entrepreneurs opt for LLCs due to their cost-effectiveness and the provided liability protection, which is often more accessible compared to corporations. For example, an LLC’s finances are distinct from individual assets, offering a level of separation. Additionally, they usually operate as pass-through tax entities, enabling the inclusion of profits or losses on personal tax returns. The exception lies with LLCs whose members opt for taxation under the corporate structure.

What kind of tax flexibility does an LLC provide?

LLCs can choose to be taxed as sole proprietorships, partnerships, C corporations, or S corporations. This flexibility empowers LLC members to efficiently lower their tax responsibilities.

What’s the fee to register an LLC?

The fees for registering an LLC differ based on the state. They can range from as low as $35 in Montana to as high as $500 in Massachusetts.

What state has the lowest LLC fees?

Among all states, Montana, Kentucky, and Arkansas boast the lowest LLC fees.

What’s the cheapest LLC filing service?

The most cost-effective method to register your LLC is by doing it yourself via the state’s website. When seeking an LLC filing service, fees can fluctuate based on the range of services provided. Some top choices include LegalZoom, ZenBusiness, and Incfile.

Can I start an LLC for free?

There are no states that permit free LLC formation. Every state imposes a filing fee to initiate an LLC, and the most affordable state for LLC formation is Kentucky, which charges $40. If you encounter a formation service claiming to establish your LLC at no cost, this does not cover the state filing fees.

How much does it cost to form an LLC with an online service?

Using an online formation service to establish an LLC typically ranges from $0 to $79, not inclusive of state fees, for a basic formation package.

How much is a Texas LLC?

In Texas, initiating your LLC requires a payment of $300 for LLC filing fees to submit your certificate of formation to the secretary of state. Annually, to maintain your LLC’s good standing, you’ll be required to pay a franchise tax. This tax will be based on your LLC’s net surplus.

How much is insurance for an LLC?

While most states don’t mandate LLCs to carry insurance, depending on your business type, you might consider one or several of the following insurances:

• General liability insurance
• Professional liability insurance
• Business interruption insurance
• Workers’ compensation insurance
• Directors and officers (D&O) insurance

The costs for these insurances can vary significantly, ranging from hundreds to thousands of dollars, contingent on factors such as your business’s size, location, associated risks, and annual revenue.