Key Takeaways:

  • Filing an LLC yourself is the cheapest option, but it requires understanding state-specific filing fees and forms.
  • Legal assistants and incorporation services offer convenience but vary in cost; comparing their prices can lead to savings.
  • Additional savings can be achieved by working from home, renting equipment, and digitizing paperwork.
  • Choosing the right state for your LLC can significantly impact costs due to state-specific fees and tax obligations.
  • Registered agent services, though an added expense, ensure compliance and prevent missed legal notices.
  • Understanding ongoing costs like annual reports, state franchise fees, and taxes helps avoid unexpected expenses.
  • Avoiding common mistakes during LLC formation can prevent costly corrections later.
  • UpCounsel connects business owners with experienced attorneys for LLC formation and legal guidance.

Cheapest Way to Start an LLC

Finding the cheapest way to start an LLC is an effective strategy to save capital when starting your business.

Cheapest Way to Form an LLC

Choosing to form an LLC is one of the first steps you will take when starting a business. Cost is a common factor among business owners.

It can be difficult to account for LLC fee payments when you are just starting out. It is costly to start a business, often exceeding the money you have on hand. It is ideal to find as many cost-saving strategies as possible. Fortunately, some options will allow you to file the necessary documents yourself to help save some money.

LLCs are a business structure that has some taxation benefits on the profits while also allowing some management flexibility that is unlike that of a corporation. If you intend to raise money through investors at some point, it is best to convert your LLC to a corporation, as it is more attractive to investors.

An LLC allows the owner to pass through the burden of taxation to the owner’s personal finances. When an investor invests, he or she does not want that liability.

LLCs let you determine who the members are and who will own what percentage of the business. It is great if you do not want to deal with all of the rigid regulations of a corporation.

Advantages of LLC

  • You will not be responsible for the debts of your business unless the corporate veil is pierced
  • There are lax management rules
  • You can tailor your startup how you like
  • You are only taxed once instead of twice like in corporations
  • There are also some disadvantages of LLCs
  • The corporate veil is easier to pierce due to unestablished laws
  • You may have to pay state franchise fees

Choosing the Right State for a Cheap LLC 

The cost to form an LLC varies significantly by state. Some states, like Kentucky, charge as little as $40, while others, like Massachusetts, charge $500. Selecting a state with lower filing fees can reduce your initial costs. However, it is vital to consider ongoing costs like annual report fees and franchise taxes. Forming an LLC in a state where you do not conduct business may lead to additional fees and compliance requirements, making it more expensive in the long run.

States with lower formation costs and reasonable ongoing fees often preferred for a cheap LLC include:

  • Kentucky ($40)
  • Arkansas ($45)
  • Colorado ($50)
  • Mississippi ($50)
  • Iowa ($50)

While Delaware, Nevada, and Wyoming are popular for their business-friendly laws, they may not always be the cheapest option for small business owners due to their ongoing fees.

Forming an LLC: Do-It-Yourself Way

The least expensive way to form your LLC is filing the forms yourself, although it will depend on the filing fees in your state. Incorporation statements for LLCs are typically the Articles of Organization. The name for these documents will vary from state to state.

You can hire a professional to form your LLC, like a lawyer, for instance. You will be responsible for his or her hourly fees along with the state filing fees.

You can easily save money by taking care of the filing yourself. You can find the forms in your state secretary’s office or on their website.

Your state may offer the forms online, and you may even be able to complete the process electronically.

LLC forms are typically very straightforward and simple to complete. You can complete the process online, through email, or regular mail very easily.

Registered Agent Considerations 

Every LLC is required to appoint a registered agent to receive legal documents and official notices. You can serve as your own registered agent, which is the cheapest route. However, this requires you to maintain a physical address in the state and be available during business hours. Missing legal notices can lead to penalties or default judgments.

Hiring a professional registered agent service typically costs $100 to $300 annually but offers benefits:

  • Ensures compliance with state regulations.
  • Protects your privacy by keeping your personal address off public records.
  • Helps prevent missing critical legal documents.

Forming an LLC: Use a Legal Assistant

Having an attorney form your LLC can easily cost hundreds of dollars. This is a huge expense for a startup business. To decrease that cost, you can rely on a consultant to help you form your LLC for much less. They specialize in building business structures by streamlining the process, particularly LLCs for as little as $25 plus the cost of your filing fee.

Comparing LLC Formation Services 

Online incorporation services offer affordable LLC formation packages, often starting at $0 plus state fees. However, additional services like registered agent support, EIN acquisition, and operating agreement drafting may raise the price.

Popular LLC formation services include:

  • ZenBusiness (Starting at $0 + state fees)
  • Incfile (Starting at $0 + state fees)
  • LegalZoom (Starting at $79 + state fees)
  • Northwest Registered Agent (Starting at $39 + state fees)

Comparing these services can help you find the best balance between cost and features. While low-cost packages seem appealing, they may lack essential services, requiring additional purchases later.

Forming an LLC: Use an Incorporation Service

If you do not want to deal with any paperwork yourself, you can opt to use an incorporation service to create your LLC. Several companies will do this. One thing to remember, however, is that you should only use these services to form your LLC. If you have legal questions or need advice, you should turn to your attorney for accurate information.

Avoiding Common Mistakes When Forming a Cheap LLC 

Filing an LLC incorrectly can lead to delays, penalties, or legal complications. Common mistakes to avoid include:

  • Failing to check LLC name availability with your state.
  • Inaccurate or incomplete Articles of Organization.
  • Neglecting to draft an Operating Agreement, which outlines the management structure and member responsibilities.
  • Omitting to obtain an Employer Identification Number (EIN) from the IRS.
  • Forgetting to file annual reports or pay state fees on time.

Taking these steps correctly from the beginning saves time and money, preventing costly corrections later.

Forming an LLC: Cutting Other Costs

In general, once you have filed the Articles of Organization for your business, you are officially ready to go. After you have created your business, there are some additional ways you can save money.

Working from a home office or shop is one great way to save. Renting any equipment you use sparingly is another way to spend less. You can also digitize your documents to eliminate the need for hard copy storage and printing costs.

Understanding Ongoing LLC Expenses 

While forming a cheap LLC is a great start, understanding ongoing expenses is essential to avoid financial strain:

  • Annual Reports: Most states require annual or biennial reports, costing anywhere from $20 to $300.
  • State Franchise Fees: Some states, like California ($800 annually), charge franchise fees regardless of business activity.
  • Business Licenses: Depending on your industry and location, you may need specific licenses, adding to the costs.
  • Taxes: LLCs often have pass-through taxation, but some states impose separate business taxes.

Factoring in these ongoing expenses ensures your LLC remains compliant and financially stable.

Frequently Asked Questions

  1. What is the cheapest state to form an LLC?
    Kentucky, Arkansas, and Colorado offer some of the lowest LLC filing fees, starting at $40 to $50.
  2. Can I form a cheap LLC online?
    Yes. Online services like ZenBusiness and Incfile offer LLC formation starting at $0 plus state fees.
  3. Is a registered agent required for a cheap LLC?
    Yes. You can be your own agent or hire a service, which typically costs $100 to $300 annually.
  4. What ongoing costs should I expect with an LLC?
    Expect annual report fees, state franchise taxes, business licenses, and possible registered agent fees.
  5. Can UpCounsel help with forming a cheap LLC? 
    Yes. UpCounsel connects you with experienced attorneys to guide you through LLC formation and legal requirements.

If you need help with the cheapest way to start an 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.