An LLC company is one of the most popular business forms and the most beneficial legal structure for many types of businesses today. The establishment of a corporation or an LLC is performed at the state level, hence, LLC law varies by state and so do the business formation fees. Some states have lower fees for registering a limited liability company while others come up with higher filing rates. Besides, if you choose to start an LLC with one of the best company formation services, get ready to pay for their assistance too. So, standing on the verge of business incorporation, many entrepreneurs ask themselves what is the cheapest US state to register an LLC company. And while there is no clear answer to this question, most likely than not, the cheapest state will be the one you are going to do your business in. However, if you want to learn more on this issue before finally making up your mind about the state of LLC formation, read our article.
LLC Formation Benefits
Before we dig into how much it will cost you to form an LLC company, first, let’s unwrap the benefits this business form offers:
- Limited Liability Blanket: What makes an LLC so attractive for many future businessmen is the limited liability protection it offers to owners. While both sole proprietorships and partnerships associate owners with the company and make them liable for the company risks and problems including debts, financial issues, claims, and lawsuits, an LLC company sets the owners aside from the business at a legal level. Thus, neither you nor your partners have any personal liability against the business commitments. And the members’ personal assets and property cannot be used for compensations or reimbursements under company-related issues. It’s an especially big plus for growing businesses with higher related risks.
- Flexible Tax Options: LLC formation gives you an opportunity to choose between different tax schemes, mostly because the IRS has no separate tax classification for LLCs in place and regards this business entity type as other business forms for tax purposes. As a result, after the business incorporation, all LLCs are taxed as pass-through entities reporting their income taxes at personal tax returns of their owners and avoiding federal and state tax returns. Besides, as the company grows and increases its profit, you might switch to a corporate tax status to tinker with taxes depending on your business scenario.
- Higher Business Credibility: Separated from its owners, an LLC company is a formal business structure that has more credibility with financial and regulatory institutions and, as a result, gains more trust from the customers as well.
- Easy Business Formation Process: Unlike corporations also offering a limited liability shield, yet entangling many formalities to set up, LLCs are quite easy to set up. Besides, online LLC formation services make this process a no-brainer for business owners not eager to get involved in registration routines.
- Simple Management System: Yet another big advantage of LLC formation is relatively simple company management, with no bureaucracy and multiple procedures entangled. The company can be operated either by the members or by a hired manager, and there are not many internal paperwork routines to follow.
LLC Formation Costs
When it comes to business formation, first and foremost, you should determine the state you want to register your business in. With state-specific LLC law in mind, some states look more LLC-friendly than others mostly due to varying state filing fees, tax rates, and other obligatory payments. Yet, while a filing fee is a one-time payment you should make to legalize your business, some other fees are payable on a regular basis to maintain your LLC company in good standing with the state and lawfully run your business. Thus, common LLC costs are split between filing expenses and maintenance costs.
LLC incorporation is not free of charge in the US, and each state charges a different filing fee to register your future company with the state. In fact, this is the only payment you need to make to officially form a business entity if you choose DIY business formation. And if you select to hire a lawyer or start a business with the help of LLC formation services, the cost will be increased by an attorney fee charged on an hourly basis or by the price of the LLC service package accordingly.
Speaking of the state filing fees, they widely range by state and could be anywhere between $40 and above $500. In this concern, Kentucky is the cheapest state to register your business in, and Massachusetts (with a $520 filing fee) is the most expensive one. There are a few states that also require making a publication about LLC formation in a local newspaper and levy a separate fee for that. However, despite such a big gap in pricing, you’ll make this payment only once at the stage of business formation, and it will have no impact on other business costs waiting for you ahead.
What should give you more concern is regular costs to keep your LLC company running lawfully and in compliance with the regulatory state rules. These are so-called maintenance costs that include:
- Annual Report Fees: Most US states require LLC companies to file annual reports to update the company info. And while some states like Oregon charge a moderate $100 fee or even no fee at all for those reports in the case of LLC in Texas, other states levy hefty report fees lingering around $800 and more.
- Taxes: Yet, while report fees are rather fixed rates, taxes are something that depends on your company profit. The good news is that LLCs taxed under a pass-through system don’t pay income taxes at a business level. In the meantime, though, many states have sales, excise, and franchise taxes in place levied to all LLC companies engaged in commercial business and those taxes also vary in rates and amounts by state.
- Licenses and Permits: Some types of business activities require licenses and special permits issued at a federal, state, and local level. License fees are usually payable on an annual basis and are state-specific as well.
In the end, it’s the maintenance costs that can take up the biggest part of your LLC formation expenses, so, you’d better check these fees rather than filing rates when planning to register your business entity. On top of that, it’s worth noting that living in one state and registering your LLC company in the other state, you’ll still have to file for a “foreign LLC” status in your domestic state and pay for that.
Do Incorporation Services Bump up LLC Organization Costs Too Much?
Though LLC incorporation is quite easy and straightforward to pass through on your own, many businessmen prefer to delegate this task and wonder if LLC services will bump up the total registration costs too much. Overall, LLC formation services offer reasonable pricing, and most companies won’t charge more than $100 for professional assistance in business formation. And some of the best LLC services come up with even lower formation prices of about $40 to $70. More than that, there are a couple of online LLC formation service providers that can establish an LLC for free, just at the cost of a state fee. So, if you do need help in business incorporation, it won’t cost you a fortune. Among multiple LLC services operating on the legal market, there is surely the one to fit your budget.