Starting a business is exciting. Perhaps, you already tasted success with your prototype or services and want to take it to the next level? There’s nothing wrong with operating as a sole proprietor as a beginner, but as you mount the business ladders, you are exposed to risk.
One of the best ways to structure your business right is to set up an LLC.
Now hold on, you may consider that to be a complicated, expensive task, but allow us to break it down for you.
Interesting fact: Did you know that there are over 2.4 million businesses structured as LLCs in the US?
How much does it cost to set up an LLC?
State filings fees
The state filing fee is one of the mandatory expenses when you set up an LLC. State filing charges vary for different states, ranging between $40 and $520 across the US. The average state filing charge is close to $125 in the US.
Fees for a Registered Agent
You need a Registered Agent to accept legal documents on your behalf, Service of Process, concerning any legal matters.
While most of the new business owners end up hiring someone to be their Registered Agent, a company or a person, they don’t necessarily have to do so. If you have a street address in the state where you’re forming an LLC, you can serve as the Registered Agent for your LLC. The other option is to hire a Commercial Registered Agent for a fee, between $100 to $300 annually.
File Articles of Organization
You have to file the Articles of Organization with your designated state secretary’s office. Articles of Organization include some vital information about your business, including name, management structure, the purpose of LLC, and even the address of founding members (in some states).
Cost of operating agreement
You’ll need an operating agreement for your LLC. It is a document that describes how your business works, the financial decision-making process, and how the profits or losses are split among the LLC members. It is not a mandatory document in most of the states, but it’s, nonetheless, a critical document.
You can purchase a custom operating agreement online for $100-$200 or have a lawyer do it for you for a fee, usually $100 to $500.
Federal Tax ID (EIN)
A Federal Tax ID Number (EIN) is a must for opening bank accounts for your LLC. It is crucial for a variety of business transactions, including tax-filings, applying for credit or loans, and even getting a credit card.
You can obtain EIN yourself by applying online with the IRS. The other option is to have a lawyer do it for you for a fee ($50 to $100).
Annual LLC fees
The last part of the puzzle is the annual maintenance fee for your LLC, charged by your respective state. It is often called as Annual Report or other different names across different states. If you fail to pay the annual maintenance charges, your state has the right to dissolve your LLC.
To sum it up, you will need anywhere between $1000 to $1,500 to set up an LLC with a lawyer. You might be able to save money by doing some of it yourself or working with an online LLC filing company/website. Our advice is to be cautious about different regulations while filing an LLC. You don’t want to end up paying penalties later!