The cost of starting a limited liability company (LLC) includes the price of filing fees for a new LLC. This business entity offers its owners, called members, personal liability protection. This means they are not responsible for debts and financial obligations of the business. An LLC also has the advantage of pass-through taxation, which allows the members to avoid being taxed at both the corporate and individual levels. The profits and losses of the business are reported on each member's individual tax return.

An LLC can have just one member or more than one. A member or a professional manager appointed by the members can manage it. This management structure should be recorded in the LLC's operating agreement. Although members can vote on decisions of the LLC, no formal meetings or board of directors is required. An LLC is formed at the state level, and the laws governing this structure vary from state to state.

LLC Startup Costs

The costs to establish an LLC are as follows:

  • Filing fee, which varies by state from as little as $40 to as much as $800. You can check with the secretary of state's office for a current fee schedule.
  • A certified copy of the approved articles of organization.
  • Name availability search and reservation. You must be sure that another business in the state isn't using your desired name before you register it. Some secretary of state offices charge a fee for searching and reserving your name. If you skip this step and a business with a similar name is already registered, your application will be rejected and you'll need to pay to refile.
  • Federal and state trademark registration, if applicable.
  • Publication of LLC formation if required by your state. In this case, the state clerk's office designates specific local papers where you must publish a notice of your LLC formation for a specific amount of time. This fee can range from less than $50 to thousands, depending on where you live and the cost of publication.
  • Hiring a registered agent, a professional service responsible for receiving legal and official documents on behalf of your business, such as service of process. A member who lives in the state of registration can also serve as the registered agent. The fee to hire a professional service is typically a few hundred a year.

Ongoing LLC Costs

Yearly LLC filing fees are determined by the state and can be changed at any time. Common state fees include:

  • Annual franchise tax, typically a flat fee charged to all LLCs registered in the state.
  • Reporting fees, an annual LLC maintenance fee. These sometimes increase with the number of members and can be as low as $20 and as high as $10,000, depending on the state and the LLC's membership structure.

Failure to pay these fees can result in the dissolution of your LLC and the loss of your favorable tax status and limited liability protection.

Legal Documents for LLC Formation

While the process for forming an LLC varies by state, the general procedures are the same. The primary formation document is called the articles of organization. This includes basic information such as:

  • The name and address of the business
  • The name of each member
  • The name and contact information of your registered agent or attorney.

While not legally required in most states, you should also create an operating agreement, especially if your LLC has more than one member. This legally binding document establishes:

  • The rights and responsibilities of each member
  • The ownership interest percentages
  • The procedure for transferring shares
  • Meeting requirements
  • Profit-sharing procedures
  • Rules for dissolution
  • Other structural and financial decisions.

This document must be signed by all LLC members.

You'll also need to register for an employer identification number (EIN) with the IRS. This federal tax ID number is required to:

  • Open business bank accounts
  • Apply for loans
  • File taxes
  • Get credit cards.

The EIN can be obtained for free by signing up online. Do not request your EIN before your LLC is officially approved; doing so will mean the number is for you as an individual, not for the LLC.

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