How Much Does an LLC Cost: Everything You Need to Know
Costs vary from state to state, but due to their ease of startup, LLCs are one of the most popular types of business structures. 3 min read
How much does an LLC cost? Limited Liability Companies (LLCs) are fairly simple and inexpensive to start and maintain. Costs vary from state to state, but due to their ease of startup, LLCs are one of the most popular types of business structures.
What Is an LLC?
LLCs are business entity types that keep the finances of the owners and the business completely separate to offer protection to the members in the event of company debts, legal issues, or dissolution.
Taxation classification for LLCs is flexible and can either offer pass-through qualities like a sole proprietorship or partnership, or double taxation if the LLC chooses corporation status with the IRS. Pass-through taxation is when the LLC itself is not taxed as its own entity, but the income of the business is taxed through the personal tax returns of the members because the business income passes through to them. Corporations incur double taxation because the company is taxed on its income and the shareholders are taxed on the shares they receive.
The owners of an LLC are called its members, like the owners of a partnership are called partners, and the owners of a corporation are called shareholders.
LLCs can be managed by the members or they can choose to hire an outside manager or appoint one of the members to handle the business's daily operations. These decisions regarding the business structure and member responsibilities should be clearly outlined in the operating agreement.
LLC Required Documents
The requirements for LLCs vary depending on the state in which the business is registering. They usually require formation documents or articles of organization. Some states also require the LLC members to form and sign an operating agreement.
These documents will lay out the basic information for the business. Operating agreements should include the rights, responsibilities, and ownership percentages of the members and any other details to help the members handle any possible issues that might come up.
Articles of organization usually just include things like:
- Name and address of the LLC
- Name and address of the registered agent
- Planned duration of the business (if not meant to be perpetual)
- Member names
Business owners will also need to obtain an Employer Identification Number (EIN) from the IRS. This acts as a sort of Social Security Number for the LLC and is usually required to open a business bank account and on tax filings.
LLC Startup Cost
When starting an LLC, the following things will likely cost the business owners:
- State filing fees
- Reserving a name for the LLC
- Publishing a notice with the local news
- Hiring a registered agent
- Hiring a lawyer for assistance with filing
- Purchasing a template for an operating agreement online
The fees to file your LLC will depend on the state in which you choose to conduct business. The range of these fees is quite large. Some examples of filing fees include:
- $40 in Kentucky
- $520 in Massachusetts
- $70 in California
- $250 in Alaska
To find out what it will cost to file an LLC in your state, you can visit the Secretary of State website or their business divisions site. Once you file your formation documents, you'll likely want a copy for your records, which will also cost a fee.
If you choose a name for your LLC and find that the name is available for use in your state, you might want to reserve the name to be sure that no one else takes it while you're getting your formation documents in order. Most states allow for name reservations but also charge a small fee.
Some business owners also want to file their name with the U.S. Patent and Trademark Office or as a service mark or trademark with the Department of State. It's also a good idea to reserve a domain name for your business to be sure that it's available when you're ready to set up a website for the company. All of these actions will also cost money.
LLC Cost to Maintain
Once your LLC is up and running, there are some regular fees that you'll need to be ready for. Most states require annual costs to maintain a status of good standing. Such fees include:
- Franchise taxes
- Annual report fees
If a business owner is not careful to remain compliant with these state requirements, their LLC could be forcibly dissolved.
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