Many startup founders dive into their businesses without considering the costs of business documents. It is highly important to have a clear idea of the costs involved. This article gives a snapshot of some typical costs.
Register a DBA Name
After deciding on the kind of business structure you will have, you must determine how your business will interact with the public. The most elemental step in this process is both a legal requirement and a branding exercise, and that is selecting what is known as a “doing business as” (DBA) name. A DBA name allows you to conduct business using a designated name, at minimal cost, without having to register a corporation. The DBA name is registered with the Secretary of State or another state agency, but you may find registration handled at the county level in most states. Each county may have different forms and fees for registering a name. The cost of getting a DBA name is anywhere from $5 to $100 and it takes one to four weeks to file.
Limited Liability Company
If you want to create a firewall around your personal finances, so that business liabilities do not impinge on your personal wealth, you may want to create a limited liability company (LLC).
An LLC is a business structure that combines the pass-through taxation of a partnership or sole proprietorship, i.e. the business’s income is passed through to owners’ personal income, with the limited liability of a corporation. An LLC is not a corporation under state law. It is a legal business structure that provides limited liability to its owners, called “members”, in many jurisdictions. Ownership is not restricted by quantity or type, so members may include individuals, corporations, other LLCs and foreign entities, and up to any number you want. It is also possible to have single-member LLCs in most states.
An LLC is formed in the state in which it operates, by filing Articles of Organization and other business documents with that state. A few states use a Certificate of Organization to form an LLC. These must be submitted to the Secretary of State of the state in which the business will operate. The cost of this process is $50 to $500 depending on the state.
A partnership is the relationship between two or more people to do trade or business. Each partner contributes some asset, eg a skill, property, money, or labour and shares in the profits and losses of the business. A partnership must file annual returns on income, deductions, gains, losses, etc from operations, but does not pay income taxes, instead passing these through to its partners. A partnership is formed through articles of organization and the cost of this process is $50 to $500 depending on the state.
Subchapter C Corporation
A Subchapter C corporation, or C-corp, is any corporation which is taxed separately from its owners. Many companies, including many major companies, like Snowflake, are C-corps. Prospective shareholders exchange money, property, or both, for the corporation’s capital stock. The guidelines regarding the operations of a C-corp are generally written into law, which has the effect of lowering costs. You must file articles of incorporation with the Secretary of State in order to establish a C-corp and this process can cost $25 to $1,000 to create these business documents.
Subchapter S Corporation
Unlike a C-corp, an S-corp does not pay income taxes at the company level. S-corps pass through corporate income, losses, deductions, and credits to their shareholders for federal tax purposes in order to avoid double taxation of corporate income. The regulations surrounding S-corps are stricter than those of a C-corp. An S-corp must:
- Be a domestic corporation
- Have only allowable shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation.
S-corps must file their articles of incorporation with the Secretary of State at a cost of $25 to $1,000.
Some state or local jurisdictions require businesses to pay for business licences. Some states and local governments require all businesses to pay for business licenses. So, for example, an injury trial attorney like Horst Shewmaker Law would have to pay for a business licence. The cost usually ranges from $50 to $400 or more, depending on the type of business. There may be an additional processing fee of $25 or so as well.
Other Licenses and Permits
As you accumulate your business documents, you may find that there are additional licences or permits specific to your business, that you must obtain. The type and cost of these vary by jurisdiction. The range here is broad and can be as low as $100 or as high as thousands of dollars. The Small Business Administration’s database will tell you what licences and permits you need.