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.