Each person who wants to start off being their own boss will eventually come across one simple question: how much does it cost to open an LLC? How much will you have to pay in the short run, and what costs will you have to cover in the long run?
Becoming the owner of a Limited Liability Company (LLC) has its advantages, and as your own boss, you are not required to maintain normal business hours. However, you must know all the LLC filing fees, so that you do not have any surprises in the long run.
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Usually, the best time to start an LLC is right away. Most people are likely the most discouraged by the formation costs for an LLC. To form an LLC, you will have to put some money upfront beforehand. Here is what you need to cover as someone just starting up an LLC.
Read our guide on the best states to open an LLC.
To legally start doing business, you will have to file for a document called the Articles of Organization (sometimes referred to as the Certificate of Formation). This is the legal document proving that your Limited Liability Company is a legal business entity.
The Articles of Organization has different state fees, depending on where you live. The filing fees for these legal documents are usually around $50 and $100. However, there are certain states in which the fee may be rather expensive. For instance, in Alaska, it may cost as much as $250.
The operating agreement is not a mandatory part of starting an LLC - but more likely, something it's recommended you get. The operating agreement will describe precisely how your LLC will be run and what role all the LLC members will have.
For instance, if the managing members of your LLC are you and your registered agent, then the operating agreement will cover the way all decisions are made.
You can file the operating agreement yourself, but it is still recommended that you get a business attorney for that. These providers of legal services usually ask for service fees of around $50-100.
It's a fee that is not mandated by the state for you to pay, but it can save you a lot of hassle by preventing a partnership dispute.
As the only owner of a sole proprietor, for instance, you would be able to run the business under your own name, without necessarily having to give your business any other name. However, an LLC needs a name - and once you make the reservation for the name, you will have to file for it as well.
You must reserve a name that has not been used before. Also, it mustn't be very similar to the business names that have been used before.
If you want to make your business known, your individual or business entity needs to be unique and easily recognizable.
In almost every state, you can reserve the name for about 1-2 months, and all that is needed is a reservation application. This step is entirely optional, but if you decide to go through with it, then the reservation fee is anything between $10 and $50.
After you filed for the LLC name, you may want to consider filing for a fictitious business name as well.
This is optional, but if you do not necessarily want to use your LLC name (the one on your Articles of Organization application), then you may apply for an assumed name or a DBA.
In order to get a fictitious business name, you need to file your application and then pay a certain filing fee.
Depending on the area that you are operating in, your LLC formation might only need a single-state application. You must contact the Secretary of State for that.
However, in other states, you might have to file in the county that you are operating in. Depending on the county, you may also need to publish said fictitious name in a newspaper.
Costs differ, based on the state. It can be as little as $10 and as much as $200. However, on average, you have to pay somewhere around $50 and $100.
As mentioned, depending on the state, you might have to announce your LLC in a newspaper first. This will also come with several publishing costs. Once that is done, you need to bring the proof for your official LLC formation.
The cost will differ from newspaper to newspaper, and it is typically associated with $50 worth of state fees. It will also depend on how often you have to publish.
For instance, Nebraska and Arizona require you to run it daily for three weeks, whereas New York needs you to run it for six weeks.
Depending on where your business is, you may need a business license in order to operate in that state or city. Check this with the government in your city or your county.
Certain states, such as Washington, need a state-wide business license. That being said, most states will have you file the same set of legal documents, meeting requirements only for local business licenses.
The costs for getting a business license will likely depend on the state that you are in. This means that you may have to pay anything between $50 and $100.
From the very start, you will have to get an Employee Identification Number (EIN), which will be necessary in order for you to get your tax return. In most cases, the EIN is completely free of charge, and you can file for it online yourself.
However, in other states, you might have to pay a certain filing fee as well. It is recommended you do some inquiries at the IRS to determine whether you will need to pay for your EIN or not.
Now that you have finally formed your LLC and paid your filing fees, you need to know that your initial payments will not cover you in the long term. You will have several ongoing fees to pay as well. Here is what you will need to keep in mind:
Aside from the initial filing fee, limited liability companies will have to pay annual reporting fees once every 1-2 years. This fee should be paid at the Secretary of State, and it is necessary in order to keep your LLC's contact information up to date.
The filing document is often referred to as the annual (or biennial) report, statement of information, or periodic report. Depending on the circumstances as well as your state, the fee can be anything between $20 and $100.
The reporting fee may also change depending on whether you are a single member LLC or if you are a multi-member one. It is recommended that you do your research with the local government and the secretary of state.
As the owner of an LLC, you will have a few annual fees that you must keep in mind. You need to pay this annual fee, regardless of how much your business makes.
The franchise tax is typically a flat tax, but depending on your earnings, certain states might charge different fees.
For instance, if your business has been inactive for the past year or making no profit, then you might have to pay a very small maintenance sum.
When you form an LLC, you will typically be informed about the annual fees along with the LLC startup costs. The minimum annual franchise tax will be given to you when you file for your Federal Tax ID number.
Once more, the fees will depend on the state that you are in. In California, for example, the minimum fee is $800 per year. However, in other states, the annual franchise tax can be as low as $100.
As an LLC, you also need to appoint a professional registered agent to help you with the legal aspect of your business. For instance, if you get sued, they will be your connection between you and the government.
With a single-member LLC, you may act as your own registered agent if you have the qualifications for it. However, it is recommended to designate a third party as the LLC's registered agent. You can get your lawyer to do the job, or you may opt for registered agent services instead.
The annual fee will depend on the registered agent that you hire. Each company will charge different fees in that regard. A registered agent service will charge fees between $100 and $300, depending on the expertise or the state.
As an LLC, you may have to periodically renew your license. This may be done with the local government, or it may be done with the state government - depending on each case.
The license renewal fee will depend on where you are registered. That being said, the filing fee for having your license renewed is typically between $20 and $100.
The compliance fee is not exactly just one fee, but several fees that you may or may not have to pay in the long run. You need to be compliant with the filings and regulations of your LLC, as they are not negligible.
Very often, it takes time and attention in order to stay compliant, and several small yet significant fees might become of great importance. Without these compliance fees, you might end up leaving your assets without protection.
As a sole proprietor, you may use your own bank account in order to receive payments and handle your finances. However, with an LLC, you have to open business bank accounts instead.
Opening the account is typically free of charge, but you may be required to pay a maintenance fee every month for your account. Typically, the larger banks ask for this fee, and you will have to pay anything between $8 and $12 every month.
Certain banks offer free checking accounts for business, so you may want to do your research. Moreover, some banks may waive your monthly fee, provided you meet an average balance. You may want to check with your local bank and see what your options are.
Overall, initial LLC formation costs can go between $50 and well over $300. For instance, to form an LLC in Arizona, you will have to take out around $50 out of your pocket. However, if you plan on doing the same thing in Tennessee, then you may have to pay up to $3,000, depending on the type of business that you are intending to run.
Ongoing costs will also depend on the state that you are trying to run your business in. Ongoing LLC costs can be as little as $0 (South Carolina), or as much as $3,000 (Tennessee). You might want to check with your state or local government, as they will give you a summary of the LLC cost in the long run.
So, how much does it cost to start and run an LLC? Depending on your state, an LLC can be either very affordable or very expensive. It can cost as little as $100 if you go for the bare basics, or it can go well over several hundred dollars if you pay the extra recommended fees.
It is recommended to talk to your attorney and make inquiries with your local or state government. They will usually give you an exact list of the fees that you will have to pay, both in the short term and in the long term.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?