Cost to Set Up LLC: Everything You Need to Know
Most LLCs have a manager, whether it be an actual member or an outside third-party manager. 3 min read
2. Costs of Operating an LLC
3. Formation Costs
4. Ongoing Costs
Cost To Set Up LLC
The cost to set up LLC varies by state. An LLC, or limited liability company, is a business structure that offers liability protection to its owners (members). This means the members aren’t held personally liable for the debts of the business.
The LLC has great flexibility in terms of its management structure. Most LLCs have a manager, whether it be an actual member or an outside third-party manager. If the members manage the business, the LLC is referred to as member-managed, but if an outside manager manages the business affairs, then the LLC is referred to as a manager-managed LLC. If you choose a non-member manager to oversee the business, then keep in mind that the members will not have daily oversight over the business operations. Instead, the members will have only voting rights over the major decisions made.
Once you have chosen your management structure, you will need to include it in your operating agreement. While this agreement is generally required in most states, it is highly beneficial as it is used as a legally binding document that can help prevent legal disputes amongst members throughout the life of the LLC.
Similar to an S corp, the LLC offers pass-through taxation. This means the business doesn’t pay corporate federal income taxes. Instead, the profits from the business are reported on the members’ personal income tax returns.
Costs of Operating an LLC
There are two main types of costs that you should keep in mind when forming and operating your LLC, and these include the formation costs and ongoing costs.
Some formation costs include:
- Registration/filing fee for the Articles of Organization
- Service fees, i.e. hiring a lawyer and/or accountant
- Publication fee
- Registered agent fee
- License fee
- Franchise tax fee
Formation costs include the fees associate with filing the Articles of Organization, state filing fees, and service fees at the time of formation. The Articles of Organization will need to be filed with the Secretary of State’s office in the state you choose to operate in. When filing this document, you will need to pay a business registration/filing fee. This fee usually ranges from $50 to $800, depending on the state.
Service fees also need to be considered and can include legal and accountant fees if you choose to hire a lawyer and/or accountant to help you form your LLC.
An additional type of fee could be a publication fee. Some states, including New York, require that you publish a notification in the local newspaper identifying your interest in forming your LLC. This publication notice is generally published several times – once a week for up to six months. These fees could be quite high, as the State of New York charges more than $1,000 for publication.
Another type of fee that you could be required to pay is the registered agent fee. For example, if you form an LLC in a state in which you aren’t living, then you will need to hire a registered agent who can accept legal papers on your behalf in the event of a potential legal suit. The registered agent fee is usually $100 a year.
Some of the typical ongoing costs associated with maintaining your LLC include:
- Annual reporting fee
- State taxes
Most states require you to submit an annual report, which is sometimes referred to as a Statement of Information. Some states also charge ongoing state taxes. For example, California requires LLCs to file a Statement of Information within 90 days of formation and again every two years. The fee for submitting this document is $20. The state also charges an annual fee of $800, which is due by the 15th day of the 4th month after formation, and then again every year after that. Delaware charges an annual tax of $300, which is due every June 1. However, there is no state income tax. Nevada charges an ongoing annual cost of $150 along with a $200 business license application, which are both due within 30 days after formation.
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