What Is an LLC

How much does an LLC cost depends on multiple factors. An LLC, or limited liability company, is a structure for a business that separates the owner's personal property from the holdings of the business. LLCs have more flexibility in the operations, as well as benefits related to being a pass-through entity for taxes. This type of entity structure is similar to a partnership or sole proprietorship. As a pass-through entity, the LLC isn't taxed; instead, profits are passed to its members and those profits are taxed.

In most states, an LLC is inexpensive and easy to form, offering an advantage over other types of business structures. Some states also allow for the formation of an LLC by filling out standard forms or completing those forms online. You can even form a single-member LLC by filling out the forms, and the fee to complete the process is minimal. For those with more complex LLCs, legal assistance may increase the cost but is worthwhile.

Using an incorporation website to form the LLC comes at a cost as low as $99 or up to $900. After paying the filing fee, you must also pay additional fees to get an employer identification number (EIN) and the operating agreement. The IRS requires that all LLCs be formed under state statutes, not federal statutes. As a result of this regulation, the costs to establish and maintain an LLC will vary between states. Certain states have stricter and more expensive requirements, making it harder to set up an LLC.

Forming an LLC, How Much Does It Cost?

When you are considering starting a business, take a closer look at the option to form that business as an LLC. As you consider how you will structure the LLC, consider the two main costs associated with forming the business. These two main costs include startup and ongoing. The startup costs include paying for the expertise and additional services from a professional provider, such as an attorney or accountant.

Requirements and Filing Fees

Every state requires a filing fee to register an LLC. However, the amount of that filing fee varies between states. For example, Kentucky's LLC filing fee is $40, while the filing fee in Massachusetts is $520. The updated requirements and fees to form an LLC are available through the Secretary of State's office. 

Another requirement of forming an LLC is creating articles of incorporation and registering them with the proper agency within the state in which you plan to file. You might need a certified copy of the articles of incorporation for tax purposes, although this will require an additional fee. When you submit your articles of incorporation, the filing fee is typically between $50 and $500.

One recommendation of an LLC is an operating agreement. This document includes a declaration of all members' rights, along with an outline of how the operations of the business will be regulated and handled. Laws do not require LLC members to use an operating agreement, but it is certainly recommended. 

The agreement should clearly spell out important aspects for members, including:

  • Responsibilities and liabilities of the members
  • Calculations for taxes
  • Ownership interests
  • Conditions if a member enters or exits the business
  • Rules for termination of the business

The IRS also requires every LLC to have an EIN, which is also referred to as a tax ID number. Before you can open a bank account for the business, you will need the EIN. You will also use the EIN to obtain credit, access the finances of the business, and file taxes. There is no cost associated with obtaining an EIN, and it comes from the IRS.

Be sure to wait to apply for an EIN until the LLC has been approved in your state. If you form the LLC after receiving an EIN, that number will be linked to you personally, making it a sole proprietorship instead of an LLC. You shouldn't need certified copies of the documents, but if the need arises, you can request these from the Secretary of State's office. The fee to get certified copies is typically low and you can order the copies at any time.

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