How much does it cost to start an LLC?
If you’re starting a business, you’re probably considering your business entity options, one of which is a limited liability company (LLC). LLCs are a great option for entrepreneurs, offering the benefits of personal liability protection and pass-through taxation. Starting an LLC is less complicated and less expensive than starting a corporation, but it does come with costs.
Here you’ll find details of the costs you’ll incur to start an LLC.
Registered agent services
First of all, before you officially form your LLC, you’ll need to select a registered agent. A registered agent for an LLC is required in nearly all states and is a person or company authorized to accept official documents on behalf of the LLC. Some entrepreneurs choose to be their own registered agents, but most choose to hire a registered agent service.
If you’re your own registered agent you have to be personally available at your registered agent address during normal business hours, which is restrictive. A registered agent service will always be able to accept your LLC’s correspondence and ensure that no important documents are missed, which can be costly if it causes you to miss a reporting deadline.
Registered agent services only cost between $100 and $300 annually but can save you time and allow you to be where you need to be to grow your business. Some examples of registered agent services include Northwest Registered Agent and ZenBusiness.
State fees to form your LLC
To form an LLC, you must file a document with the state, which is usually called the articles of organization but is sometimes called a certificate of organization or a certificate of formation. In most states, you can file the document online by filling in the information required on your Secretary of State’s website.
The document will require your LLC name, business address, registered agent information, and sometimes your management structure and the names and addresses of members or managers.
Fees vary by state. For example, in Kentucky, the fee is only $40, while the fee in Massachusetts is $500. Most state fees fall closer to $100.
You can learn more about officially forming an LLC on howtostartmyllc.com. The site also has state-specific guides to forming an LLC, and other articles on LLC related topics.
Operating agreement
While not required in most states, an operating agreement for an LLC is a crucial document. It defines the ownership percentages of LLC members, how profits or losses are distributed, the management structure of the LLC, the roles and responsibilities of members and managers, and contains many other important provisions.
You can find free templates online to create an operating agreement, but using those is not advisable. Another option is to go to a business formation service online and purchase their template. Many companies like LegalZoom offer an operating agreement as part of their LLC formation packages, or as an a la carte item that can be purchased for a fee of $99 in the case of LegalZoom.
However, your best option is to seek the guidance of an attorney to draft your operating agreement, particularly if your LLC will have more than one member. An attorney can ensure that the operating agreement is specific to your state, business type, and to your future plans for your company.
An attorney, of course, comes with a higher cost. For a single member LLC, you may pay around $500, while for a multi-member LLC it may cost up to $2,500.
It’s worth the cost, though, to make sure that the interests of all members are protected.
Business licenses and permits
Your business, depending on the type, may be required to obtain certain business licenses and permits at the federal, state, or local levels. Most businesses don’t require licenses or permits at the federal level. Federal licenses are generally required for businesses in industries that are regulated by a federal government agency.
At the state level, you may need a sales tax permit, health related licenses, professional licenses, or industry specific licenses. Requirements and fees vary by state, so check with your state government to find out what your business needs.
At the local level, you may also need certain permits, such as health permits, fire permits, or sign permits. You may also need a local sales tax permit. Again, fees and requirements vary by location, so check with your local governments.
Overall, you should plan to spend between $100 and $300 to obtain your business licenses and permits. Some also must be renewed periodically, which may involve modest fees.
Business insurance
You’ll want to speak with your insurance agent about what insurance protection you should obtain for your business. At a minimum, you’ll need general liability insurance, which covers you in many situations. Professional liability insurance may also be a good idea, as it protects you if a client claims financial damage from an error or omission in your work.
Other types of insurance that you may need include business property insurance, equipment insurance, or commercial vehicle insurance, as well as worker’s compensation insurance.
Depending on your needs, you can expect to spend $200 to $400 monthly on premiums.
Business startup costs
General startup costs, of course, vary by business. You’ll want to create a good estimate of what exactly your startup cost will be so that you’re prepared. Costs can include inventory, a marketing budget, a human resources budget, and a general operating budget. They could also include a deposit on your business rental space, equipment, or vehicle costs.
Be sure to consider everything that you’ll need to get your business to opening day.
If you’re going to need funding, you might want to start by talking to your bank representative or financial advisor about your options.
Annual reports
In most states, LLCs are required to file annual reports, which come with a fee, and simply verify with the state that your LLC is still in business. Fees and requirements vary by state. For example, Ohio has no annual reporting requirement or fee, while California has an annual report fee and an LLC annual tax that add up to $800.
Check your state’s reporting requirements.
In closing
As you can see, starting an LLC comes with several costs that you need to be prepared for. Hopefully, you can access the funding you need and get your business up and running. Once you do, if you’re successful, you’ll recover those costs and start to get a great return on your business investment.
