Cheapest Way to Form an LLC: Everything You Need to Know
The cheapest way to form an LLC is often a thought on most business owners’ minds when deciding to form a limited liability company. 3 min read
2. LLC: An Overview
3. Do it Yourself
4. Use a Legal Assistant
5. Use an Incorporation Service
Cheapest Way to Form an LLC
The cheapest way to form an LLC is often a thought on most business owners’ minds when deciding to form a limited liability company. With that said, the LLC business structure is a favorable choice for many small businesses that are newly established.
When you have just established a business, you’ll generally have no money or profit. Therefore, forming your business can be quite expensive. Start-up costs generally exceed the amount of cash on hand, so it is important to look for savings wherever you can.
There are several do-it-yourself options that allow you to save money and form your LLC without losing more money than you have.
LLC: An Overview
LLCs offer many advantages to its members, particularly with regard to:
• Enhanced flexibility of the management structure
• Limited liability protection for its members
• Ease of formation
But if you ever want to raise capital from outside investors, then you will need to convert your LLC into a C corp, as LLCs cannot sell stock to outside investors.
With regard to flexibility, most states have fewer formalities for LLCs. For this reason, LLCs are free to setup any type of management structure they choose. LLCs operate as either member-managed or manager-managed LLCs. An LLC is member-managed if the members themselves manage the LLC, and an LLC is manager-managed if the members choose to hire an outside manager to oversee the daily operations of the business.
The LLC offers personal protection for its members; as such, the members cannot be held personally responsible for the obligations of the business. Keep in mind that exceptions to this rule do exist. If any member engages in fraud or otherwise represents the business as his or her own (an extension of oneself), then he or she could be held personally liable.
LLCs operate as pass-through taxation entities, meaning the profits of the business pass through to the members (owners) who report it on their personal tax returns. Therefore, the LLC doesn’t pay corporate income tax. C corporations, however, are subject to double taxation.
The LLC is simple and inexpensive to form. You can determine the percentage of ownership that each member has (if operating a multi-member LLC).
Do it Yourself
If you are looking to save money, then forming an LLC yourself is a good way to go. You can avoid having to pay service fees, such as legal or accountant fees if doing it on your own. You can easily draft the Articles of Organization yourself, as this document includes basic business information. You can obtain a form on your Secretary of State’s website, print it out, and fill it in. Depending on the state, you might also be able to draft it and submit it entirely online, which can speed up the process. Be sure to check the applicable filing fee.
Use a Legal Assistant
If you choose to have an attorney help you draft the Articles of Organization, you will need to pay the filing fee as well as the hourly legal fee that the attorney charges. An attorney could charge several hundred dollars per hour, which could quickly add up to several thousands of dollars.
There are several legal structure consultant companies that offer streamlined procedures for forming your LLC, which could charge as little as $25. Therefore, if you don’t have the money to pay an attorney, you can either file the document on your own or invest in the services of a legal structure consultant company.
Use an Incorporation Service
If you don’t feel comfortable filing the papers on your own, you can use an incorporation service that can assist you. There are many companies that you can find online that specialize in assisting businesses with formation services.
If you do go this route, remember that these companies cannot provide you with legal advice, as these companies simply assist in forming your LLC, finding a registered agent, and also obtaining an employer identification number (EIN). You will be responsible for paying for such services along with other required fees for forming your business, i.e. Articles of Organization filing fee, taxes, franchise fee, withholding sales tax fee, unemployment insurance, workers compensation insurance, annual reporting fees, etc.
If you need help learning more about the costs associated with setting up your LLC, or if you need help forming your LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.