So you decided to move forward with your business idea…
Whether that’s selling products online, being a consultant, investing in real estate, or being a 1099 contractor.
You decided that becoming an LLC was the best option.
That way, you have limited liability in case someone decides to sue your business.
And, your personal assets are not in jeopardy.
But what are the costs associated with starting an LLC?
If you’ve done any research into it, you’ve probably seen a lot of different fees and may not be 100% sure which are necessary
So today, we will go over LLC costs – the necessary costs of starting one and the costs that you can avoid.
But before anything else, let me mention that by no means are we giving you legal or financial advice as this post is for informational purposes only.
With that said, we’ll be sharing the costs associated with starting an LLC and some costs you can completely avoid.
Let’s jump right into it.
Costs #1: State filing fees
This is a necessary cost for your LLC as every state has its own filing fee.
In Arizona, it’s $50, Nevada $75, Georgia $100, New Jersey $125, and in Alabama, it’s $200.
As you can see, the fees generally range between $50 to $200, which is the case for nearly all 50 states.
The only outlier is Massachusetts who has an LLC filing fee of $500.
So what do the filing fees cover?
In most cases, the filing fee covers the costs of filing your articles of organization with the state.
Some business owners may want their articles of organization to be prepared by a lawyer.
In which case, you can expect to pay anywhere between $1,000 to $2,000.
Of course, there’s always a DIY option, but you run the risk of errors.
The articles of organization generally include:
- LLC name
- LLC’s address
- Registered agent name and address
- How the LLC will be operated and managed
- Statement of purpose
If you’re confident you can file this information correctly with your state, then you certainly can. It is NOT legally required that a lawyer prepare this for you.
So if you want to save $1-2,000, it’s completely possible for you to do so.
Costs #2: Annual maintenance fees
Once you register your LLC, there’s going to be an annual maintenance fee you have to pay to the state to keep your LLC active.
Similar to the filing fees, it varies by state but generally ranges from $20 to $300.
There are some more expensive states like Rhode Island with an annual fee of $450 or California being the highest of them at $800 per year in annual LLC fees.
Usually, you have to submit some kind of annual report with your annual fees indicating if any changes to the business have occurred.
Again, you could pay someone else to do this, but for the majority of you, this could be something you do on your own.
Unnecessary LLC Costs
Where we see LLC owners waste time and money, is registering their LLC in a different state from where they live.
Which we get since states like Michigan or Iowa have really low filing and annual fees.
However, if you register your LLC in a state different than the state you live in, you’ll be considered a ‘foreign LLC’ in your resident state.
As a foreign LLC, you’ll have to file a certificate of authority and pay registration fees.
And depending on the state, you may also have to pay state franchise taxes.
All of this is in addition to the filing and annual fees you’ll have to pay in the state in which the LLC is registered.
Unless you are a special case, it’s generally best to register your LLC in the state you live to save those additional costs.
LLC Costs #3: Publish a notice of formation
When you do file your LLC, there are some states like New York and Nebraska that require new LLCs to publish a notice of their formation in a newspaper.
Usually, the ad must run for a certain time period which can be costly and could cost you over $1000 in NYC.
Optional LLC Costs
So we’ve gone over the required costs in forming your LLC but there are some optional costs to consider.
1. Registered agent fees
If you recall, when you file your articles of organization, you have to include your registered agent’s name and address.
You can be your own registered agent but you may find it beneficial to pass this responsibility off to another organization.
A registered agent is a person or business that will receive legal and other documents on behalf of your business such as tax notices or subpoenas.
If you’re a business owner who travels a lot, or has off-site meetings, or just generally not around during regular business hours, Monday through Friday, it would be wise to hire an outside party to be your registered agent.
Also having an outside registered agent gives you some level of privacy.
Registered agent information is a public record that could be of concern if you have a home-based business.
To hire a registered agent will cost anywhere from $50 to $500 per year, and varies between companies.
2. Lawyer’s fee
Going back to the costs of hiring a lawyer. Usually, the lawyer’s fee will include other services besides just registering your LLC with the state.
Like applying for your EIN, setting up your bank account, or even being your registered agent.
However, you should know that it is completely free to get your EIN from the IRS by applying for it on their website.
The EIN is usually available within 24 to 48 hours.
You also don’t need to pay anyone to set up your bank account as we’re sure you’ve already set up a personal account on your own and your input is already needed to complete that anyway.
But some people are just not fully comfortable with performing these tasks and if that’s you, hiring a lawyer to help along the way is not a bad decision.
Though not required in forming your LLC is having an operating agreement, lawyers can assist with this as well, or you can find a template online for $100-$200
The only issue with these templates is that they may not directly speak to the operational details of your particular business.
So it is important to have an operating agreement that is catered to your business.
Other fees you may come across but are not completely necessary are
3. LLC name research fees
You can actually look up LLC names on your state secretary of state website and see if your LLC name is available.
4. LLC kit and seal
This is just a binder that holds your company documents and a seal used to emboss LLC documents.
If you use a third-party site to start your LLC, you may see them try to upsell you on this but it’s just not necessary.
5. Rush fees
Usually, when you first file your LLC, it takes about 10-14 days to be approved. The state will offer a ‘rush’ option for an extra fee.
This is completely unnecessary. Though if you are needing the LLC as soon as possible to execute a contract then this is a good option for you.
That’s it for today’s post! Hopefully, you understand now what fees are required and not required to start your LLC.
If you want to learn more about LLC before you start one, we have several posts you can read next such as:
And if you need more help with choosing the best business entity for you, contact us today.
Our expert accounting consultants will be happy to help!