How Much Does It Cost to Start an LLC?

LLC Maintenance Costs

In addition to the upfront cost required to start your LLC, you may face costs required to maintain it. Nearly every state requires that owners of LLCs file an annual report to remain in good standing. This report shares basic information about the company, including its membership, its activities from the past year, and any significant changes from the previous year.

The average cost to file an annual report is $104, but it varies significantly depending on where you live. More than a dozen states charge $25 or less for an annual fee. Meanwhile, the highest fee is $800 in California, followed by $500 in Massachusetts.

Optional Costs

Creating an LLC can be as affordable or expensive as you want it to be, aside from your state’s required filing and annual report costs. Many people choose to establish their LLC on their own, meaning they have no additional costs. Other business owners hire a third-party service to file their LLC and provide ongoing services.

Here are some of those optional costs you may face, depending on your needs:

• Expedited filing: The filing process for your LLC articles of organization can take several weeks. If you work with an LLC filing service, you can pay an expedited filing fee to have your documents filed more quickly, often within a day or two. The average expedited filing fee among those companies that charge one is about $66.
• Registered agent: A registered agent is the person who serves as the legal point of contact for your business. Many business owners choose to be their own registered agents, but you can also pay for this service, for an average annual cost of about $160.
• Operating agreement: An LLC operating agreement is an optional document in most states—though some states require it. The agreement outlines key characteristics of the business, including ownership and voting rights, responsibilities of members, buyout rules, and more. Creating your own operating agreement is free. You can also pay a third party to create your operating agreement, with costs starting around $35.
• EIN application: An EIN is a tax identification number for your business, similar to your personal Social Security number. It’s free to get an EIN directly from the IRS. If you hire a company to apply for your EIN on your behalf, expect to pay an average of about $60 to $80.
• Annual compliance: You can hire out the job of completing and filing your LLC’s annual report. The average cost, which applies on top of your state’s required filing fee, is $148.

Are Optional Costs Worth It?

Each business owner will decide whether hiring out for optional services is worth the cost. In some cases, third-party companies sell packages that may include some or all of these services. Others require you to pay for each service individually.

Some factors to consider when deciding which services to hire out include the complexity of your business, your comfort level with completing legal documents, and the amount of spare time you have to complete them. 

For example, completing an EIN application may be relatively simple, so you might decide to save money and do it yourself. Or, if you have several business partners and want to ensure the legitimacy of your operating agreement, you may want to hire a professional.

Costs by State

Who Is an LLC Right For?

An LLC is one of the most popular business structures thanks to its simplicity, tax benefits, and protection from liability. It provides the best of both worlds as far as the benefits of both sole proprietorships and corporations.

LLCs are a good choice for owners of businesses of any size who want to protect their personal assets from the potential liabilities of the business. There’s no minimum or maximum revenue amount to be able to be an LLC, so most companies could benefit from opting for the LLC structure over that of a sole proprietorship.

Meanwhile, an LLC can also be a good choice for businesses that want to avoid corporate taxation. However, as your business grows and you want to seek outside investors or ensure its longevity, you may need to upgrade to a corporation.

Alternatives to an LLC

There are two primary alternatives to LLCs: sole proprietorships and corporations.

A sole proprietorship is the simplest business structure and is free to create. In fact, if you’ve been operating a business and haven’t set up a legal business structure, you already have a sole proprietorship.

This business structure has the same pass-through taxation as an LLC. However, there’s no legal separation between the business and the owner. As a result, you could personally be responsible for your business’s liabilities.

A corporation takes the legal separation of an LLC a step further and creates the business as an entirely separate entity from its owners. Corporations provide ultimate liability protection for owners. This structure also allows owners to raise capital through private investors or public stock.

The downside of a corporation is the additional taxation. Corporations must pay corporate taxes on all profits at a rate of 21%. On top of that, owners must pay individual income taxes on the share of the profits they receive. The cost of starting a corporation can vary significantly by state, but you can expect to pay hundreds or thousands of dollars in filing fees, franchise taxes, legal fees, and more.

In addition to sole proprietorship and corporation, there are other alternative business structures depending on the number of owners in your company and your tax status. However, even with those alternative statuses, each business can ultimately be classified as either a sole proprietorship, an LLC, or a corporation.

The Bottom Line

Creating an LLC is fairly inexpensive, but the exact cost will vary by state. Learn more about your state’s requirements and fees to fully understand the costs associated with starting one. Then, weigh the pros and cons and your alternatives for doing business to determine if establishing an LLC is right for you.