Forming an LLC in the United States might be perceived as a long, complicated or expensive process. It is important for any new business owner to have the right information about the whole process.
In this guide, we will discuss the different ways you can set up an LLC and the costs involved.
What Are Your Options for LLC Formation?
Let us first have a look at the various options that you have to set up an LLC:
- DIY (Do It Yourself)
- Seek Professional Advice
- Receive Guidance Through Free Online Courses
- Online Incorporation Website
Set up an LLC by yourself
If you are looking to set up a limited liability company using the least expensive method, you can take this route. On the contrary, this method is the most time-consuming, too. The only costs that you will need to pay will be the state filing fee.
Seek Professional Advice
Sometimes a business owner or an entrepreneur might want to set up an LLC using the DIY approach, but might not have the luxury of time. Hiring a lawyer for LLC formation might be a better option in this case.
You will incur a legal cost of somewhere between $1,000 to $1,500 for the process.
Receive Guidance Through Online Courses
You can also set up an LLC by learning the process through free online courses. These are tailor-made, step-by-step tutorials that make it easy even for someone with very little knowledge about the process.
However, the only negative part about these courses is the fact that there is no one to help you out if you find yourself stuck at some stage.
Online Incorporation Website
These are websites that will cost you somewhere between $100-$900 and will take care of all the LLC formation legwork. They also make sure to equip you with all the necessary knowledge that you need to have for a successful LLC set up.
Whichever LLC setup route you take, there is a fixed state fee that varies from one state to another. You can click here for detailed fee structure for each state.
LLC Formation Costs
There are some costs that you will incur right at the start of the LLC formation process.
LLC Name Reservation
Choosing the right name for your business is not always a walk in the park. It has to be easily identifiable, must follow a certain set of guidelines and more importantly, has to be registered with the Secretary of State name database.
You can reserve an LLC name for 1-2 months (differs state-wise) by submitting an optional Name Reservation application that might cost you somewhere in between $10-$50.
Articles of Organization Filing Fee
To formally establish your business, you must submit the Articles of Organization with the Secretary of State. This can be done online at the relevant state’s website or through mail at the provided mailing address.
Filing fees for these documents vary between $50-100, however, in Alaska the fee is $250.
Since this is an internal document and doesn’t need to be submitted with any state filing office, you can either do it for free or pay for it.
LLC formation with a DIY approach means that you might have to purchase it online that can cost you between $50-$200, or you can get one of those free versions that are available online. Although, the free templates might be too basic and not cover your business structure in an accurate way.
Hiring a lawyer for your LLC setup usually means the operating agreement is included with the rest of the professional advice that you get from the attorney or the law firm. The fee for this could be around $500.
Opting for the online incorporation website option will either cost you somewhere around $50-$100, or might already be included in the package you purchase.
Employee Identification Number (EIN) is a 9-digit number that is assigned to your LLC by the IRS (Internal Revenue Service). This is a unique number that is used to identify taxpayers by the IRS and can be obtained using their official website’s online portal.
For an LLC, it is imperative that you obtain an EIN as it helps to open a business bank account, apply for credit cards and pay taxes. Obtaining an EIN is free of cost, however, if you are seeking professional advice, it might cost you around $100. Online incorporation websites might ask you to pay around $50-$100 more if you haven’t purchased one of their high-end packages already.
You need to wait for your LLC’s approval by the Secretary of State before you apply for EIN. This is because the EIN will be personally associated with you as a sole proprietorship instead of an LLC.
Business License or Permit Fee
Depending on the city, county or state you are based in, and the nature of your business, you might have to obtain certain business licenses or permits at a local, state or federal level.
These licenses and permits vary greatly, for example, Washington offers state-wide business licenses, while most of the other states might ask you to have local licenses. The average cost of these licenses or permits is somewhere between $50-$100.
Ongoing Costs to Run an LLC
There are certain costs that you will incur to keep your LLC up and running. These costs ensure your LLC’s compliance with state or federal LLC requirements.
Your LLC is required to have a registered agent before you can establish and commence your business activities.
A registered agent is an individual or an organization that agrees to act on your LLC’s behalf to accept court documents and be a point of contact for any legal correspondence with the state. For instance, if someone sues your LLC, your registered agent will be served the documents.
Anyone with a valid street address in the state where your LLC is based in, can be appointed as a registered agent. This includes a family member, a friend or even you can designate yourself as the registered agent. In case that you do not have a physical street address in the same state, then you will have to incur a cost of somewhere between $100-$300 for the services of a commercial registered agent.
Annual Report Filing Fee
You need to submit an annual report with the Secretary of State. This can be done using the online portal or by mail using the provided address.
A non-refundable filing fee is charged for this that can cost you up to $800, the annualized average fee is $91 at present.
Yearly LLC Minimum Tax
Some states might require you to pay a minimum LLC tax, also known as a franchise tax. This tax is usually between $100-$400, with California being the state with the highest minimum tax of $800 per year.
Cost of Renewing Business License
If your LLC was required to obtain a business license, you might have to renew it on an yearly basis. This could cost you around $20-$100 per year.
Beware of Unwanted or Avoidable LLC Formation Costs
At times, entrepreneurs or business owners might end up paying LLC formation costs that they really didn’t have to. This is due to lack of information.
If you do not wish to waste your hard-earned bucks, here are some of the costs that you need to beware of:
LLC Name Research Fee
Well, there is no state fee for finding the right name for your LLC. If you are ever asked for such a fee, you should know that is most likely a scam.
Registered Agent Fee
As long as your designated registered agent has a valid street address in the same state where your LLC is based, you don’t need to pay anything.
Online incorporation websites or even a lawyer might lure you into appointing them as your LLC’s registered agent, and then each year they will auto-charge you terming it as an annual fee. You should know that these are unnecessary costs that you can easily avoid.
Urgent Filing Fee
Most of the time you might not need your LLC documents the very next day. Unless you are in a real rush to have the process completed, you do not need to pay anything extra for urgent or overnight process documentation.
Additionally, ‘rush filing’ is usually nothing more than ‘rush processing’. They just move your application ahead in the queue which does not have any effect on the time that is required for the LLC formation process itself.
Membership Certification Fee
You might be told about the importance of having LLC membership certificates and how it can help in business transactions – there is absolutely no truth to these claims.
Most of your business stakeholders, internal or external, would already know about the status of your LLC. So you don’t have to impress anyone with these unnecessary certificates.
Fee for Certified Copies
Certified Copies are easily accessible on the Secretary of State website for a few dollars. Moreover, you can call at the number on this official website for any additional information that you might need.
Domain URL, Website, Business Logo, etc.
There are a lot of commission-based affiliate links these days that might trick you into paying a lot more money for things such as your website, domain name, company logo, phone line, etc., then you actually should.
Even if you are not a tech-savvy person, you can outsource these tasks via freelancing platforms at a very low price. Just Google it and you will find tons of information right away.