Forming an LLC is a critical step that many business owners take in order to protect themselves from debt or other types of liability. But while becoming an LLC could lead to greater profits, this process also requires paying for multiple fees, making it expensive for smaller businesses with very narrow margins already.
Let's break down the LLC fees you'll likely have to pay when creating your own limited liability company, depending on your state, the size of your company, and other factors.
What is LLC?
"LLC" stands for limited liability company, which is a type of business structure that limits the liability of company owners or other executives. In this way, company owners are protected from debt or other liabilities related to a company's operation.
As hybrid entities, LLCs offer some of the benefits of larger corporations but allow more freedom and require more responsibility on a personal level, making them similar to partnerships and sole proprietorships as well.
How Much Does It Cost to Start an LLC?
The overall costs to start an LLC vary state to state, though general filing fees range from between $40-$500. The average filing fee for LLCs in the US is $132 as of 2020. You can also look at a list of LLC state filing fees by clicking here: LLC filing fees by state.
The filing fee is the first mandatory expense that you'll face when setting up your own limited liability company. But there are other costs you should think about when starting your LLC that can affect the bottom line price.
What are LLC Expenses and Fees?
Most LLC expenses and fees are related to filing the actual paperwork or paying annual fees to support government clerical work involved with updating records and registering your LLC with official books.
The filing fee mentioned above is a onetime charge that you pay to the state in which you form your LLC. It's not monthly, so this one-time cost can be ignored once your LLC is created. The filing fee is due when you file your articles of organization with your state's business department.
LLC Annual Fee
The LLC annual fee is an ongoing and mandatory charge that you pay either every one or two years. Different states have this as either an annual or biennial fee, and these fees are included to make sure that your LLC's records are properly updated, that your LLC is in compliance with state regulations, and that it remains in good standing.
Furthermore, LLC annual or biennial fees will incur late charges if you pay them after the indicated deadline. If you don't pay your annual or biennial charge, your LLC may be shut down.
For example, Alabama LLCs must pay $100 every year. Alaskan LLCs must pay $100 every two years. Some states are even more complex – California has both an $800 annual fee and another $20 biennial fee. This means that you'll pay $800 one year and $820 the next year, then go back to $800 the year after that.
Many states have ancillary fees that your LLC will need to pay regularly to remain in good standing. These include:
- Annual franchise taxes – LLC profits are not taxed directly in most cases. But some states have annual flat taxes to collect this additional revenue anyway. For example, California has a minimum annual franchise tax of $800 per year, whereas Delaware has a minimum annual franchise tax of $250 per year
- Fees for registered agents – these individuals may come with attached fees if you hire a professional registered agent service to provide your organization with such a professional. The annual fees for these companies and their services are often up to several hundred dollars
- State business license renewal – your LLC must also renew its state or local business licenses. These can range from between $20-$100 on average
Other Startup Costs
In addition to the one-time filing fee, your LLC may be required to pay additional setup costs, such as:
- A company name filing fee. Certain names may come with charges attached. Furthermore, you'll often need to pay a small fee if you want to reserve a name for your LLC for a few weeks or months while you set up the rest of your organization
- If you operate in a state like New York, you may be required to state the formation of your LLC in at least one newspaper. This can cost anywhere between $20 up to several thousand dollars based on the specific publication requirements
In addition to the above fees, LLCs must also pay certain reporting charges. Reporting fees help to maintain your LLC as a legitimate business and can fluctuate wildly based on things like how many partners you have, how many locations you have open, and more.
For example, New York has minimum reporting fees of $325 up to a maximum of $10,000. However, some states may have very low reporting fees, such as $20 a year.
Fees Vary by State
Once more, LLC fees very heavily from state to state. To make things more complicated, those fees and legally be changed at any time. States that may want to raise more revenue for government activities may increase these fees arbitrarily one year, then lower them the next year. That means you'll need to keep up with annual and biennial fees for your state(s) of operation when running your LLC.
In the end, most LLC fees are easy to understand and are outlined with the official documents you'll need to fill out when forming your LLC. The majority of LLC fees are also recurring or annual as opposed to one time only, so you'll become more used to paying these fees as your LLC lasts for longer.
Still, it's important to remember not to miss any of these fees or accidentally forget to pay them, particularly when filing for your LLC initially. Even a small mistake could set back your LLC's formation for weeks or months, delaying your business's progress.