1. LLC Startup Costs
2. Legal Documents for LLC Formation
3. Ongoing LLC Costs

How much does it cost to start an LLC, or a limited liability company, depends on the state where you plan to do business, as well as the structure of your company and other factors. An LLC is a specific type of business entity that provides its owners, called members, with personal liability protection. This means their personal assets cannot be seized to fulfill business obligations or debts. An LLC can have one or more members.

LLC members enjoy tax advantages and operating flexibility. An LLC is subject to pass-through taxation, which means it is not taxed at the corporate level. Instead, profits and losses are reported on each individual member's tax return.

An LLC should appoint a manager to administer the day-to-day operations of the business. This can be a member or a professional manager the members have hired. Either way, this structure should be specified in the LLC operating agreement. No formal business meetings are required, but LLC members can vote on important decisions.

LLC Startup Costs

The startup costs to form an LLC vary by state, but typically, they include the following:

  • Filing fees ranging from just $40 in Kentucky to hundreds in states such as Massachusetts. You can receive updated fees and requirements from the secretary of state's office where you plan to establish your LLC.
  • You may want to reserve your desired LLC name with the secretary of state's office. This service is available in certain states, usually for a nominal fee.
  • Once your LLC name has been registered with the secretary of state, you can also apply for federal protection with the U.S. Patent and Trademark Office. Registering a federal trademark also carries a fee.
  • If your LLC is in a state that requires public notification, you'll be required to publish a notice in specific papers designated the secretary of state designates. This can cost as little as $40 or more than $2,000, depending on the costs to run an ad in your local paper. Once you've completed this step, you'll receive a certificate of publication that is submitted along with your articles of organization.
  • You may need to hire a registered agent, who will agree to accept legal papers and service of process on behalf of your LLC. This costs between $100 and $300 a year. However, you can have a member serve as the registered agent if he or she has a street address in your state of operation.

You may also want to hire a lawyer to help prepare your articles of organization and operating agreement, as well as assist with other setup requirements in your state.

Although guidelines for creating an LLC vary by state, the general steps are usually the same. First, you'll need to create and submit a legal document known as articles of organization. This includes standard information such as:

  • The name and address of your business.
  • The names and addresses of members.
  • The name and address of your designated registered agent.

An operating agreement is not required by law, but it is recommended if your LLC has more than one member. This document indicates each member's:

  • Rights
  • Responsibilities
  • Liabilities
  • Ownership interests.

The operating agreement should also detail:

  • Procedures for transferring membership rights.
  • How profits will be shared.
  • How and when meetings will be held
  • What happens when a member leaves.
  • How taxes are calculated.
  • How the business can be dissolved.

You'll also need to request an employer ID number (EIN) from the IRS. This is used to:

  • Apply for loans and credit cards.
  • Set up bank accounts.
  • File taxes.

The EIN is free and can be requested on the IRS website. Make sure you wait to create your EIN until after the state has approved your LLC. Otherwise, your EIN will be registered to you as a sole proprietor and cannot be used for the LLC.

Ongoing LLC Costs

In addition to your startup costs, there are ongoing ownership and maintenance costs associated with an LLC. Depending on the state, these typically include:

  • An annual franchise tax, which is often a flat fee.
  • Reporting fees, which typically vary based on the number of LLC members.

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