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How Much Does it Cost to Start an LLC And How To Start It?

How Much Does it Cost to Start an LLC And How To Start It?

Last Updated on September 24, 2021 by DMEditor

When you want to start a business, it is essential to know the different types of business structures that you can choose from. Not only are there many types, but each type has its advantages and disadvantages. One type is the Limited Liability Company (LLC).  

LLCs offer limited liability for your assets in case anything goes wrong with your company. You also have more flexibility than other companies since an LLC does not require as much paperwork or formalities compared to corporations. This article aims at explaining how much does it cost to start an LLC and the steps you need to take to get your LLC.

What is a Limited Liability Company (LLC)?

An LLC is a business structure that provides limited liability to the company’s (owners), which means that any debts, lawsuits, or complaints are taken care of by the LLC and not its owners. 

Types of Limited Liability Companies (LLCs)

How Much Does it Cost to Start an LLC

Single Member LLC or Sole Proprietorship 

The first type of LLC is a “single-member” or “sole proprietorship.” An individual can create an LLC as a single member and then operate it without additional paperwork, filings, or taxes (although they must report income). 

A lot of entrepreneurs choose to go through life as either a sole-proprietor or an ‘S’-Corporation. This is because it offers protection from lawsuits while also being less expensive when it comes to taxes.

Multi-Member LLC

A multi-member LLC is a business entity that has two or more members. For the most part, they offer the same protections for their owners’ assets as do corporations, partnerships, sole proprietorships, and limited partnerships.  A multi-owner LLC can be restrictive to its owner when it comes to dealing with debts. The reason being each owner shares equal responsibility for any liabilities incurred by the company.

Non–Profit LLC

A nonprofit LLC is a limited liability company that engages in business activities to generate profits but the profits and losses are not distributed to shareholders. 

The main advantage of this structure is the lack of double taxation. If a non-profit earns money, it pays income taxes on that profit as any other business would. However, if it distributes those earnings to its members or donors somehow, they will not be taxed for receiving them.

Series LLC

A series LLC is a type of Limited Liability Company that works as an umbrella corporation with multiple single-member LLCs underneath. The top-level (parent) and the bottom levels (unit members) form a unitary business. However, they could be structured in other ways to suit their needs. 

Series LLCs are popular in industries like finance, real estate, and farming. One main benefit of a Series LLC is that it provides separation between different assets, with each member having only exposure to their own liability.

Series LLCs are found in several states, including Delaware, Nevada, Tennessee, Iowa, Illinois, Utah, Texas, and Oklahoma.   

Professional LLCs

A professional LLC is a business structure that offers protection for your assets and income. A Professional Limited Liability Company (PLLC) includes two or more professionals such as doctors, lawyers, accountants, architects and so on with different rates of ownership in the company. 

Each member has their profession, which means they will be classified as professionals and only be liable for their actions.

How Much Does it Cost to Start an LLC

Anonymous LLCs

Anonymous LLCs do not provide for the public disclosure of members names. They are popular for protecting the personal assets and privacy of their members.

Anonymous LLCs remain secretive even after audits by a government agency or private person seeking more information about the business. The only time where there can be more public disclosure of the members’ names is if a creditor can prove that the LLC member owes them money.

How Much Does it Cost to Start an LLC?

The cost of forming an LLC varies from State to State. In California, for example, the minimum filing fee is $70 and an additional $800 franchise tax is payable annually. You are also required to pay a $20 statement of information fee every year.  To understand more about the charges required, find below the costs per state;

State
Filing fees
Recurring costs
Alabama
$200
$100 privilege tax (Annually)

 

$10  Annual report

Alaska
$250
$100  Payable every 2 years
Arizona
$50
$0
Arkansas
$50 by mail, $45 online
$150  Franchise tax report (annually)
California
$70
$800 Franchise tax (annually)

 

$20 information statement (annually)

$50
$10 annually
Connecticut
$120
$80 annually
Delaware
$90
$300  Annual franchise tax
Florida
$125
$138.75 Annually
Georgia
$100
$50 annually
Hawaii
$50
$15 annually
Idaho
$100
$0
Illinois
$150
$75 Annually
Indiana
$100 by mail, $95 online
$50 Biennial report
Iowa
$50
$60 Biennial report
Kansas 
$165 by mail, $160 online
$50 Biennial report
Kentucky
$40
$15 annually
Louisiana
$100
$30 Annually
Maine
$175
$85 annually
Maryland
$100
$300 annually
Massachusetts
$500
$500 annually
Michigan
$50
$25 annually
Minnesota
$135 by mail, $155 online
$0 (report due annually)
Mississippi
$50
$0 (report due annually)
Missouri
$105 by mail, $50 online
$0
Montana
$70
$20 annually
Nebraska
$105
$10 Biennial report 
Nevada 
$75 + $105 for list of officers
$150 annually for list of members and managers
New Hampshire
$100
$100 annually
New Jersey
$125
$75 annually
New Mexico
$50
$0
New York
$200 + publishing costs
$9 biennially
North Carolina
$125
$200 annually
North Dakota
$135
$50 annually
Ohio
$99
$0
Oklahoma
$100
$25 annually
Oregon
$100
$100
Pennsylvania
$125 + publishing costs
$70 decennial report 
Rode Island
$150
$50 annually
South Carolina
$110
$0
South Dakota
$150
$50 annually
Tennessee
$300
$300
Texas
$300
$0
Utah
$70
$20 annually
Vermont
$125
$35 annually
Virginia
$100
$50 annually
Washington
$200
$60 annually
West Virginia
$100
$25 annually
Wisconsin
$170 by mail, $130 online
$25 annually
Wyoming 
$100 by mail, $102 online
$50 annually (minimum)

How to start an LLC

Choose a Name

It may be your dream that your LLC may one day appear on the list of leading brands. Coming up with an appropriate name for your new business is a crucial step towards forming your company. When doing so, it is vital to go for a marketable name as it can grow to be a leading brand in the future. While choosing a business name, make sure that you comply with your specific State’s rules. Most States require you to;

  • Choose a name that ends with LLC or Limited Liability Company
  • Make sure that your name is unique and does not belong to any other existing business.

Pick a Registered Agent

All states require that you have a registered agent who will be receiving all official or legal documents on behalf of your LLC. Any person over 18 years is eligible to be the LLC’s registered agent. Naming yourself or an employee as the registered agent is also acceptable.

The registered agent has to have a physical address in the State where the LLC is registered and should be available during regular working hours. Other than choosing an individual as your agent, you can also select a registered agent services company. In such a case, you will pay a fee for services rendered which may be more than $100 annually.

File Articles of Organization for the LLC

Start by finding out where to file articles of organization. If you’re in a state that allows for online filings, then you can do so at the Secretary of State’s website. 

The articles of organization have to be signed by the company’s organizer or a majority of its organizers. It will have to include the following;

  • name of the limited liability company; 
  • address where it intends to do business; 
  • names and addresses of those who are forming this LLC (called “members”); 
  • how they share ownership in percentages; and
  • The name of a company representative.

Come Up With an Operating Agreement

An operating agreement is an agreement between the members of an LLC that spells out how they will run their business. Just like a contract or partnership deed, it is binding and enforceable in law.  A good operating agreement protects each member’s investment by outlining what happens if one member wants to leave the company (e.g., sells their interest or dies). 

The agreement should cover various topics, including how much investment each member has made into the company. It should also deal with other critical issues like who will be responsible for significant decisions in different areas of its operations.

Apply for an EIN (Employer Identification Number)

An Employer Identification Number is a tax ID number needed to start an LLC. It is used as the employer identification number on your form SS-E and when you file any business returns with the IRS, such as form Schedule C-EZ. The Internal Revenue Service considers the SS-E and Schedule C-EZ to be your tax reporting forms.

You can apply for an EIN by filling out Form SS-E on the IRS Website. The form is mailed to you or sent via email if filled in online. You can also download the PDF of this form from the site.

Obtain an LLC Certificate from The State

An LLC certificate is a document that declares the company as legally recognized. It also serves as proof of business ownership, making it easier for companies to do more legal transactions without exposing their owners. Applying for an LLC certificate will protect your assets from any potential liability and lower the cost of starting up with certain types of insurance.

It is essential to apply for an LLC certificate because it shows the company as a legal entity. It also protects personal assets from liability and offers certain types of tax protections. 

What are the Benefits of Starting an LLC?

Less Paperwork

One of the most attractive benefits associated with an LLC is less paperwork. If you’re looking to start a business and are unsure which type of entity would be best suited for your needs, then an LLC may be just what you need. 

Reason being that while it has more formalities than other entities like sole proprietorships or partnerships, they are far less than those associated with corporations. Some of them include giving annual reports, holding annual shareholder meetings, and so on.

Easy Profit Distribution

The benefits of starting an LLC come from the company structure to how easy it is to split profits. This type of business entity can operate in several ways, with the choice coming down to what works best for your needs and goals. 

Unlike corporations, where sharing profits depends on the number of shares held, owners in an LLC can quickly agree on how to share their profits.

Flexibility in Tax Payment

Owners of an LLC enjoy many tax benefits that a traditional corporation or partnership does not. An example is paying taxes where the owner can choose to pay on their personal level and not file quarterly with the IRS. Doing so gives them more flexibility than owners of corporations who need to declare their profits before receiving their dividends.

Such flexibility is important because it helps a business owner retain earnings and not pay out as much in taxes. 

Flexibility in Management

Flexibility in operations is one of the key benefits of owning a limited liability company. Unlike most businesses, LLC owners enjoy complete control over how their business runs and don’t need approval from any other person or entity. This means that you can do anything – including changing your location, hours of operation, or paying rates – without input from anyone else.

Limited Personal Liability

LLCs are categorized as separate legal entities from their owners, meaning that their debts and liabilities are different from their owners. It means that the owner’s assets (personal property) cannot be seized by debt collectors for any wrongdoing as long as they are not personally at fault for the issue and followed their company’s policies. 

Drawbacks of Starting an LLC

Difficulties in Raising Capital

LLCs can’t sell stocks which is one way of raising capital. It becomes difficult to raise equity for the business since the company doesn’t have a “legal identity” and is seen as too risky by potential investors. To raise money from outside sources, you need to create paperwork with all sorts of legal documents.

Hard to Transfer Ownership

A change in leadership can be difficult because you have to go through all sorts of formalities and documentation before it is official, which can take quite a bit of time. Not only does this make it harder for new owners who want to take over, but it also means that the business might be in limbo while you wait for all of this stuff to get done.

Higher Starting and Renewal Fees

LLCs pay high renewal fees every year in most States compared to other businesses. States such as California and Massachusetts have high annual fees – a disadvantage to an LLC operating there.

FAQs

Question: How Can I Reduce the Costs of Forming my LLC?

Answer: You can reduce the costs by
• Being the registered agent yourself
• Handling all the formation process on your own
• Making your own operating agreement

Question: Do I Have to Pay Renewal Fees for my LLC Every Year?

Answer: In most states, you will have to pay some renewal fees annually. The other States do not require renewal fees at all

Question: Can I Enjoy Tax Benefits Through an LLC?

Answer: You can enjoy tax benefits when your LLC pays taxes through the flow-through taxation as an S or C corp.

Conclusion

An LLC is a limited liability company, which means that it limits the personal responsibility of its owners for debts or obligations. This type of business entity can be formed in any state by filing articles of organization with either the secretary of State’s office or a designated third-party provider. You are then required to pay an annual fee to maintain your status as an active corporation. 

The expense to form an LLC varies depending on where you live; however, most states require less than $200 in startup costs. To ensure compliance with all relevant laws when starting your own business, consult both professional legal counsel and accountants before making final decisions about how much money should go into creating this new venture. 

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