LLC Cost: Everything You Need to Know
LLC cost can differ from state to state. The LLC cost in California will be cheaper than filing as a corporation. 5 min read
2. Types of LLC Costs
3. Ongoing LLC Costs
4. Annual LLC Fees
5. How Much Is California’s Corporate Tax?
6. California Incorporation Fees
7. Annual Franchise Tax
8. Benefits of Forming an LLC
9. Filing Articles of Incorporation
10. Hiring a Registered Agent
11. Federal Employer Identification Number (FEIN)
12. Filing Assistance
What Are LLC Costs?
The LLC cost can differ from state to state. The LLC cost in California will be cheaper than filing as a corporation. It costs about $85. However, there is also a $20 charge to the corporation when it files a Statement of Information. Having an LLC also requires ongoing fees. There is a yearly $800 fee, which is due three months after the LLC is created and every April 15th afterwards.
Types of LLC Costs
There are two types of costs associated with an LLC.
- Costs of starting up the business
- Costs of maintaining the business
Ongoing LLC Costs
To maintain an LLC, the business is required to pay certain filing fees, which are paid to the Secretary of State. These fees can increase at any time, and many states often do increase these fees in order to raise more money. An example of an ongoing cost are reporting fees. Reporting fees are annual payments that the LLC is required to pay in order to maintain its status. These fees can range anywhere from $20 to $10,000.
Annual LLC Fees
California LLC fees and taxes are determined at the state level based on the state’s tax schedule. The total amount of California taxes an LLC will need to pay is the amount of taxes plus the amount of fees.
- If an LLC is earning less than $250,000 per fiscal year, the LLC would be required to pay $800 in taxes, with no LLC fee.
- If an LLC is earning between $250,000 and $499,999 per year, the tax is $800 and the fee is $900. The LLC would thus be required to pay $1,700.00.
- If an LLC is earning between $500,000 and $999,999 per year, the LLC would be required to pay $800 in taxes and $2,500 in fees, paying a total of $3,300.
- If an LLC is making anywhere between one million dollars and $4,999,999 per year, the tax is still $800, but the fee will be $6,000.
- For any LLC earning anything above five million dollars per year, the tax is still $800, but the fee will now be $11,790.
The LLC tax accumulates each year until the LLC is dissolved. These fees are in addition to any U.S. federal income taxes.
How Much Is California’s Corporate Tax?
The corporate tax rate in California is 8.84 percent. This rate is comparable to many other states. There are many exemptions to this tax, as well as deductions and other approaches to reduce the tax fee.
California Incorporation Fees
California imposes fees when a business is looking to incorporate in California because of the various stages of the process. For example, California will impose a fee for when a corporation registers its name. This fee is determined based on location. There is also a filing fee of $100.
Once incorporated, a business must file a detailed report about the corporation and will incur a fee of $25-$75. This report needs to be filed annually along with a service charge of $25. In addition, if your business needs a specific license, it will also be charged a fee. For example, most municipalities will charge anywhere between $50 to $100 for a small business license.
Annual Franchise Tax
There is also an annual franchise tax of $800 that an LLC will have to pay if they are registered to conduct business in California. This fee will apply to all California businesses as well as foreign businesses and applies even if the LLC doesn’t do business or operates at a loss. An LLC will also have to pay the full $800, even if it registers in the middle of the year. However, there are a few exceptions to this rule:
- If no business is being done during certain short periods of time
- Non-profit organizations
- LLCs owned solely by members of the Army that are deployed
- S corporations
If an LLC is not in compliance with the requirements above, it could possibly lose protection over its assets.
Benefits of Forming an LLC
While it definitely takes some research and planning to start an LLC, it allows the business’s assets to be protected from any liability. It provides security and allows each partner to acquire their earned payouts. LLCs can also attract investors because it is more legitimate than a non-incorporated business.
Filing Articles of Incorporation
- Corporation name and purpose
- Corporation’s address (street and mailing)
- Address of the corporation’s agent for service of process (cannot be a P.O. box)
- Amount of shares the corporation will be issuing
The filing fee is $100 and must be either physically sent to the Secretary of State or filed in person.
Hiring a Registered Agent
Each corporation must register an agent for service of process in California. By registering an agent, he is agreeing to accept any legal correspondence on behalf of the corporation. The corporation itself cannot act as its own agent.
The registered agent must consent before being designated by the corporation. He or she may be a resident of California. The agent is required to have a street address, as opposed to a P.O. box. If they are not a California resident, a corporate agent must file a Certificate pursuant to Section 1505 of the California Corporate Code with the Secretary of State.
Smaller corporations tend to name either a director or other officer to initially serve as the agent, but another agent can always be named afterwards. In addition, private service companies can also act as a corporation’s agent, which the Secretary of State will provide an interested corporation.
Federal Employer Identification Number (FEIN)
Every employer is required to obtain a Federal Employer Identification Number (FEIN) before the business can open a bank account, apply for a license, or file a tax return. While not all small businesses needs an FEIN, any employer with employees that operates as a corporation or partnership must obtain an FEIN.
If an owner of a business is not sure if it needs an FEIN, he or she can reach out to the IRS, who will provide the answer. Typically, if a business reports on a personal tax return, the business is not required to have an FEIN since it can just use the social security number. However, if the company intends to report on a business tax return, it must obtain an FEIN.
If a company is required to have an FEIN, there are multiple ways in which to apply. It can obtain an FEIN by phone, by fax, by mail, or online. To apply by phone, the number is (800) 829-4933. To apply by fax or mail, an applicant will need to fill out the SS-4 form and locate the fax number and mailing address for the IRS location.
To apply online, an applicant can go to the IRS website. Here, he or she can file the SS-4 form or participate in an “interview style” live chat with a representative that will request information from the owner and will issue an FEIN if it determines the business requires one.
Regardless of which method an applicant chooses, the company’s FEIN number won’t activate for two weeks.
The good news is that there are a number of services that can help you set up an LLC. While costs for this type of assistance vary, it usually starts at about $50, but will increase depending on the amount of service needed.
If the LLC has multiple partners, it is recommended that an attorney is hired to assist in forming the LLC. These fees will vary depending on the specific circumstances, so it is advised to obtain quotes before hiring an attorney.
If you need help with figuring out your LLC’s costs, you can post your legal need on UpCounsel’s marketplace.