There are a few questions to ask yourself before even getting started, like how much does it cost? What type of LLC are you forming? Should you do it yourself? Do you need an attorney? These are just the basics, but once you really make up your mind, it’s good to know which expenses can be reduced or avoided.
Here are a few costs associated with forming an LLC:
Registration
When registering your LLC, you have a few options. You can DIY, use a registered service provider, or hire an attorney. If you’re doing it yourself, it’s important to know what you need. The name of what you need to file may vary, as LLC laws differ between the states and depending on the one you choose to register in. You may see Articles of Organization, Articles of Incorporation, or some variation of the two. This may be the most cost-effective, as most states allow you to file online, via email, or regular mail. Most forms are very simple and straightforward, which works to your advantage. You can usually find the forms and associated filing fees on the website of the Secretary of State. Fees cost from $75 up to $500.
Another expense you may have to consider is the fee for reserving your name. The state of Alabama requires this, and that’s an additional cost that ranges from $10 to $28. If you’re considering filing a fictitious name (also called a DBA and usually optional), you may have an additional $50 to $300 in fees.
Using an attorney: If you hire an attorney, you should be prepared to pay their fee – the fee to do the work and the filing fees from the state. In most cases, the fee is high enough to cover everything. This could be a huge expense for you that you could possibly avoid.
Using a formation service: There are tons of incorporation services on the market designed to help you form your LLC. It’s important to note that they are not attorneys, so you shouldn’t take any legal advice from them. You should also make sure they are reputable. Again, you’ll be paying additional fees to a company when you could do this yourself to cut costs.
Publication
There are three states that require you to publish a notice in the newspaper when you form an LLC: Arizona, Nebraska, and New York. The price for it varies, depending on the state as well as the county in which you register. While you may not have to do this in most states, there are some states that require you to publish your fictitious name. This includes California, Florida, Georgia, Illinois, Minnesota, Nebraska, and Pennsylvania. An ad could be as cheap as $20 or as expensive as $2000. A good way to save money on this is to find out which county in the state has the cheapest rates and publish there. This will help you stay in compliance while fulfilling your required obligations.
Operating Agreement
There are some states that require you to have an operating agreement in place. These states include California, New York, Missouri, Main, and Delaware. This document creates the roles and structure of the LLC. While you may not have to officially file it, it must be kept with the company’s records. You can do this yourself to save money, because if you use a formation service or an attorney to draft this document, you may be paying between $250 to over $2000 for this document.
License Renewals and Permits
Almost every state has an annual or biennial fee associated with running an LLC. Consider these ongoing costs that you won’t be able to avoid. Some states also require annual franchise/excise taxes, business profits taxes, annual enterprise taxes, and business privilege license fees. Before getting started, it’s important to know the additional expenses required for your state to determine whether this would be financially viable for you. One of the best ways to cut costs on these annual and biennial fees is to pay when they are due. The longer you wait, the more expensive it will be. Most states charge excessive penalty fees if you miss the deadline, which could add up to $500 or more to the original fee.
While the state has specific renewal fees, you must also consider the permitting fees you may incur in your city or county. Most municipalities require you to have a business license. These licenses can range from $50 to over $6,000. You may be able to cut a few costs if your LLC is a home-based business, although some municipalities may still require a business license. It’s important to understand the regulations and determine if you need a license, permit, or both, as the regulations continuously change.
You may need a business license, professional license, health and safety permit, sign permit, and sales tax license depending on what your business does and where it’s located. You also need to check the zoning laws to determine if there are any costs you may incur in this area.
EIN Registration
The EIN, or Employer Identification Number is required by IRS. Consider it your LLC’s social security number. You need it to file taxes for your LLC, open a bank account, and other things. There are a few ways you can obtain this. If you choose to use a formation service, you’ll be paying between $60 and $70. If you use them to file the paperwork on your LLC, this may come as part of the package, but it’s not guaranteed.
This may be the same instance if you use an attorney. This may be part of the entire package, but you’ll be paying a hefty fee to obtain this. One of the best things you can do is file for the EIN yourself, which is FREE. It only takes a few minutes on the IRS website, and you’ll have the EIN number. You can start using it immediately.
Registered Agent Service
When you form an LLC, you should have a registered agent, which is a business entity or individual designated to receive and process legal documents on behalf of your LLC. This is another service that you can cut costs on if you choose to become your own registered agent.
In some cases, you can pay for a registered agent, which will accept your mail. Many people prefer this to maintain their privacy and for convenience. If you choose to use a registered agent, the fees could be as high as $125. You may also use an attorney as your registered agent, but you’ll be paying an even higher fee just to receive any legal correspondence.
While some of these expenses are mandatory, others are strictly voluntary. Knowing how to navigate and complete some of these tasks yourself can help you save time and money. Remember, these costs vary based on the type of LLC you are forming. Some may be more expensive than others. It is always best to do your research and find out the different costs associated with filing in each state and their annual requirements before deciding where you’ll file your LLC paperwork.