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How Much Does it Cost to Start an LLC (Beyond Licensing)?

By Joe

LLC Cost

Starting an LLC involves more than just paying state filing fees. You need to understand the full spectrum of costs. Currently, LLC filing fees alone range from as low as $35 in Montana to as high as $500 in Massachusetts. However, this initial expense is just the beginning. 

Here, we’ll dive into the comprehensive costs of forming and maintaining an LLC, compare this with other business structures, and highlight strategic considerations that you need to make. 

This is what’s in store:

  • LLC Cost by State: Initial Formation and Annual Fees
    • Don’t Forget Business Licensing and Insurance
  • Why File an LLC Over Other Business Structures?
    • What Can Happen When You Choose the Wrong Structure?
    • The Pros and Cons of Out-of-State Business Formation
    • Consider LLC Formation Services
  • Frequently Asked Questions
  • Final Takeaway

LLC Cost by State: Initial Formation and Annual Fees

Explore the initial LLC formation costs and annual expenses across all 50 states and outlying territories. From the affordable options in states like Montana and Kentucky to the higher fees in Massachusetts and California, each state varies in its initial filing fees and ongoing compliance costs.

Llc cost reddit

So, how much does an LLC cost? 

LLC CostAnnual/Biennial Fee
Alabama$200$50 minimum (every year)
Alaska$250$100 (every 2 years)
American SamoaFees varyContact local authorities
Arizona$50$0 (no annual fee)
Arkansas$45$150 (every year)
California$70$800 (every year) + $20 (every 2 years)
Colorado$50$10 (every year)
Connecticut$120$80 (every year)
Delaware$90$300 (every year)
Florida$125$138.75 (every year)
Georgia$100$50 (every year)
Guam$100$100
Hawaii$50$15 (every year)
Idaho$100$0 (information report annually)
Illinois$150$75 (every year)
Indiana$95$31 (every 2 years)
Iowa$50$30 (every 2 years)
Kansas$160$50 (every year)
Kentucky$40$15 (every year)
Louisiana$100$35 (every year)
Maine$175$85 (every year)
Maryland$100$300 (every year)
Massachusetts$500$500 (every year)
Michigan$50$25 (every year)
Minnesota$155$0 (information report annually)
Mississippi$50$0 (information report annually)
Missouri$50$0 (no annual fee)
Montana$35$20 (every year)
Nebraska$100$13 (every 2 years)
Nevada$425$350 (every year)
New Hampshire$100$100 (every year)
New Jersey$125$75 (every year)
New Mexico$50$0 (no annual fee)
New York$200$9 (every 2 years)
North Carolina$125$200 (every year)
North Dakota$135$50 (every year)
Mariana Islands$350$150 (every year)
Ohio$99$0 (no annual fee)
Oklahoma$100$25 (every year)
Oregon$100$100 (every year)
Pennsylvania$125$7 (every year)
Puerto Rico$250$150 (every year)
Rhode Island$150$50 (every year)
South Carolina$110$0 (no annual fee, unless taxed as S-Corp)
South Dakota$150$50 (every year)
Tennessee$300$300 (every year)
Texas$300$0 (No annual fee or reports)
Virgin Islands$350$150 (every year)
Utah$54$18 (every year)
Vermont$125$35 (every year)
Virginia$100$50 (every year)
Washington$200$60 (every year)
Washington DC$99$300 (every 2 years)
West Virginia$100$25 (every year)
Wisconsin$130$25 (every year)
Wyoming$100$60 minimum (every year)

This table’s a solid start, but always do your own homework before diving into setting up your LLC. State rules can change, which affects how much you’ll pay for filing and annual/biennial fees over time. 

Note that this table gives you the initial and yearly costs, but it doesn’t cover other expenses like licenses, agent fees, or taxes. 

For the latest details, head to your state’s Secretary of State (SOS) website, check out the SBA for general info, or talk to a legal or financial expert. 

Recommended: Secretary of State Offices Directory | Where to File a Business License 

Don’t Forget Business Licensing and Insurance

Setting up your LLC with the Secretary of State is just the beginning. In many states and cities, you might need additional business licenses or permits to operate legally. And, small business insurance is crucial to safeguard against unexpected liabilities.

For instance, in New York City, certain industries like auto sales or construction may require specific licenses beyond your LLC registration. So, you’ll need to account for these as well—they could cost anywhere from $5 to $50, depending on the type and duration

How much to start an LLC in NY?

Moreover, certain fields require licensure beyond a license to practice. For example, a salon owner in California needs what’s called an “Establishment License” (in addition to their board certificates) before they can legally serve clients. It costs $50 to apply for one of these.

LLC cost California

Annual LLC insurance costs can vary widely, typically ranging from $500 to $2K depending on your required coverage.

LLC insurance cost

Remember, every state and municipality has its own regulations. So, research and comply with local laws to make sure your business legally operates and is adequately protected.

You might also like: Complete Guide to Small Business Insurance in New Jersey 

Why File an LLC Over Other Business Structures?

The right business structure is crucial. Here’s a quick overview of sole proprietorships, partnerships, corporations, and LLCs to help you decide.

  • Sole Proprietorships are the easiest to set up with minimal costs, typically just the price of licenses or permits ($50-$300). You have complete control, but you’re personally liable for all business debts.
  • Partnerships share financial commitment and expertise among partners. Startup costs range from $500 to $2,000 for agreements and licenses. Partners share liability, which can be a downside.
  • Corporations offer strong liability protection and can raise capital through stock. However, they are expensive to set up ($1,000-$5,000) and maintain, with double taxation and extensive paperwork.
  • LLCs provide personal asset protection and flexible tax options, combining the benefits of partnerships and corporations. Costs vary by state ($40-$500 for initial filing, $100-$800 annually). LLCs protect your personal assets from business debts and offer flexible tax treatment, avoiding double taxation.

LLCs often hit the sweet spot with liability protection, tax flexibility, and fewer formalities, making them a popular choice for a majority of small business owners—Plus, it’s a good structure to use when building business credit. 

Recommended: Sole Proprietorship VS LLC: How to Choose Your Entity Wisely 

What Can Happen When You Choose the Wrong Structure? 

It’s crucial to consider all factors, not just initial fees, to find the best fit for your business needs. Choosing the wrong business structure can also have serious financial and legal repercussions. 

How much does an LLC cost per year

Suppose you start a tech company as a sole proprietorship to save on startup costs. If your business faces a lawsuit, your personal assets are at risk because sole proprietorships don’t offer personal liability protection. An LLC, however, would have protected your personal assets from business liabilities.

Several things can go wrong when you choose the wrong structure:

  • Higher compliance costs
  • Legal complexities
  • Tax implications
  • Limited liability risks
  • Operational inconvenience

Each structure has different management and operational requirements. Corporations require extensive record-keeping, regular board meetings, and formalities that might be overkill for a small business, while an LLC offers more operational flexibility.

Recommended: Low-Risk NAICS Codes +Best SIC Codes for Business Credit in 2024 

The Pros and Cons of Out-of-State Business Formation

How much does it cost to start a business?

Many entrepreneurs choose to file their LLCs in states like Delaware due to its business-friendly laws:

  1. The state’s Court of Chancery handles business disputes without juries and gives you a more predictable legal environment. 
  2. Delaware’s General Corporation Law offers flexibility in corporate structures and operations (which is particularly beneficial for corporations seeking venture capital or planning to go public).

Choosing states like Wyoming (for low costs) or Delaware (for added protection) can save money with lower initial filing fees and ongoing costs. Some states offer tax benefits, reducing overall tax burdens. States such as Nevada and Wyoming prioritize business owner privacy, providing strong protections. 

However, operating out-of-state means extra registration costs and compliance obligations as a foreign entity. Managing compliance across states is complex and can lead to legal issues. Tax complications may arise with potential obligations in both home and formation states.

Consider LLC Formation Services 

How much does it cost to get an LLC?

When it comes to forming your LLC, deciding whether to enlist a service or go the DIY route depends largely on your comfort level with legal processes and your budget. Opting for a professional service can be advantageous if you prefer expert guidance and want to make sure you comply with state regulations without the hassle of paperwork.

 Services like ZenBusiness, Northwest Registered Agent, and Swyft Filings offer tailored packages that can simplify the process for you, starting at competitive prices. For instance, ZenBusiness provides LLC formation for free with a tone of paid compliance upgrades. Meanwhile, Northwest Registered Agent offers comprehensive solutions including registered agent services that start at $125 per year. 

On the other hand, if you’re familiar with the requirements and keen on minimizing costs, handling the LLC formation yourself might be a viable option. Your own needs and preferences will help you make the best decision for launching your business efficiently…and legally.

Recommended: How to Create a Business Credit “Entity” 

Frequently Asked Questions

How much does it cost to open an LLC in the US?

Initial filing fees vary by state, ranging from $35 to $500. Annual fees and other compliance-related costs may also apply.

How much does an LLC cost per year?

Annual costs include state filing fees, registered agent fees, and potential business license renewals, varying by state.

Can I deduct LLC startup costs on my taxes?

Yes, you may be able to deduct up to $5,000 in startup expenses in your first year of business, with the remainder amortized over 15 years. Speak with a tax professional for advice about your specific circumstances. 

What is the difference between an LLC and an S Corp?

LLCs offer flexibility in taxation and management structure, whereas S corporations have stricter ownership requirements and pass-through taxation.

Final Takeaway

Beyond initial filing fees, annual expenses and compliance costs vary widely by state. Choosing an LLC over other structures like sole proprietorships or corporations offers benefits like asset protection, tax flexibility, and is a good structure for business credit. But, the wrong choice can mean higher expenses and legal issues.

Deciding whether to handle LLC formation yourself or use services like ZenBusiness or Northwest Registered Agent depends on your comfort with legal processes and budget.

Always check state resources or consult with experts to stay informed and make the best decisions for your LLC’s success.

Do you want to learn how to obtain up to $100K in business credit in as few as 30 days? Join Business Credit Workshop today!

Sole Proprietorship VS LLC: How to Choose Your Entity Wisely

By Joe

Sole proprietorship vs LLC

Here, we teach people how to build business credit. And, establishing your entity is a super important step in the process — early on, the two most common choices are sole proprietor or LLC. 

If you’re running a business as a sole proprietor, and considering an upgrade to LLC,  you might already know that you can get some business credit even without registering as an LLC or corporation…But if you’re looking to take your business to the next level and secure larger no-doc business lines of credit (think 25k, 50k, 100k), you might find it challenging without a registered corporate entity.

Banks and lenders tend to prefer working with LLCs or corporations because they offer more protection and credibility. So, I highly recommend considering forming an LLC over a sole proprietorship if you’re serious about obtaining substantial business credit.

Don’t get me wrong — you can still apply for business credit cards as a sole proprietor. But, a registered LLC or corporation can make it easier to secure other types of financing and help you build a stronger credit profile for your business. 

In this article, we’ll dive deeper into the differences between sole proprietorship and LLC, and explore their pros and cons, especially when it comes to business credit and financing options.

Here’s what we’ll cover: 

  • Are You Sure You Only Want to Look at Two Options?
    • Sole Proprietorship
    • Limited Liability Company (LLC)
    • S Corporation
    • C Corporation
    • Partnership Options
  • Sole Proprietorship vs Single-Member LLC
  • Here’s How Sole Proprietorships & LLCs Pay Taxes
    • Comparison of Tax Rates & Deductions
    • Can an LLC Be Used to Reduce Taxes?
  • How to Choose Between a Sole Proprietorship and an LLC
  • How to Register Your Business
  • Frequently Asked Questions
  • Conclusion: Which Structure is Best for You?

Now, let’s get going! 

Are You Sure You Only Want to Look at Two Options? 

Before we get too deep into the pros and cons of LLCs vs sole proprietorships, let’s take a quick look at some more entity types — I want to cover it all and give you everything you need to know. After all, it’s crucial to choose the right structure for your needs. 

You might also like: What’s the Best Payment Processor for a Small Business? Really

Sole Proprietorship

A sole proprietorship is the simplest type of business structure and is owned by one person. The owner has complete control over the business and is personally liable for its debts and legal issues. Sole proprietorships are not taxed as separate entities from the owner, meaning that the owner reports the business income on their individual tax returns.

Limited Liability Company (LLC)

A limited liability company (LLC) is a type of business entity that gives the owners (“members”) “limited liability protection.” This is a swanky way to say that the member’s personal assets are separate from the company’s assets, and their personal liability is limited to the amount of money they’ve invested in the company. 

LLCs can have one (“single-member”) or more (“multi-member”) members, and they can be taxed as either a sole proprietorship, partnership, S corporation, or C corporation, depending on how the members choose to be taxed.

S Corporation

An S corporation is another type of entity that you may want to consider — it’s a type of corporation that is taxed differently than a traditional corporation (C corporation). An S corporation’s profits and losses are “passed through” to its shareholders, who report the income on their individual tax returns. 

This means that S corporations avoid double taxation. To qualify as an S corporation, a business must meet certain requirements set by the IRS.

C Corporation

Next, you have a C corporation — a traditional corporation that is taxed as a separate entity from its owners (“shareholders”); this means that the corporation pays taxes on its profits, and the shareholders pay taxes on the dividends they receive from the corporation. 

C corporations offer limited liability protection for their shareholders, but they are subject to double taxation.

Partnership Options

At this stage, it’s also important to look at the two types of partnerships: 

General partnerships are a type of business entity where two or more people share the management and ownership and management of the company. The partners share the profits and losses of the business and are personally liable for any debts or legal issues that the business incurs.

A general partnership is typically not taxed as a separate entity from the partners, meaning that the partners report the business income on their individual tax returns.

Limited partnerships are similar to general partnerships but with two types of partners: general and limited partners. General partners have control over the day-to-day business operations and are personally liable for any business debts and legal issues. Limited partners, on the other hand, have limited liability and are not involved in the management of the business.

Limited partnerships are typically taxed as pass-through entities.

Sole Proprietorship vs Single-Member LLC

A single-member LLC is not the same as a sole proprietorship. In terms of liability protection, taxation, ease of formation and maintenance, and flexibility in management, there are considerable differences between sole proprietorships and limited liability companies (LLCs):

First of all, sole proprietorships provide no liability protection for their owners — basically, he owner’s personal assets are at risk if the business is sued or incurs debt. In contrast, LLCs offer “limited liability protection” to their owners (their personal assets are generally protected from the company’s debts and legal judgments).

Next, sole proprietorships are typically taxed as pass-through entities, which means that the business’s profits and losses are reported on the owner’s personal tax return. LLCs can also be taxed as pass-through entities, but they provide the option to be taxed as a corporation (this can be advantageous for LLCs that want to cash in on lower corporate tax rates or retain earnings in the business without paying personal income taxes on them).

And, sole proprietorships are the easiest and cheapest business entities to set up…in most states, they require no formal paperwork or registration. Now, while LLCs require more paperwork and filing fees to establish, they offer formal structure and protection. Both types of businesses require ongoing maintenance, such as keeping accurate financial records and filing tax returns, but LLCs typically have more stringent compliance requirements.

Finally, sole proprietors have complete control over the management of their businesses…but (big but), this also means that they have full responsibility for all aspects of the business. LLCs are more flexible in terms of management structure — they can be managed either by the members or by outside “managers.” LLCs can also have varying degrees of ownership and voting rights among members, which allows for more customized ownership structures.

While both sole proprietorships and LLCs offer benefits and drawbacks, LLCs typically offer more liability protection, tax flexibility, and management structure options, but require more paperwork and ongoing maintenance. 

Here’s How Sole Proprietorships & LLCs Pay Taxes

Sole proprietors report their business income and expenses on their personal tax returns using Schedule C (Form 1040). The net income from the business is then subject to self-employment taxes, which include Social Security and Medicare taxes. Self-employment taxes are calculated on Schedule SE (Form 1040) and are owed in addition to income tax. 

→ Sole proprietors are also responsible for paying estimated taxes quarterly throughout the year.

LLCs have more flexibility in how they pay taxes — by default, single-member LLCs are taxed as sole proprietorships and report their business income and expenses on the same Schedule C as a sole proprietor (Form 1040). 

Multi-member LLCs are taxed as partnerships and file Form 1065 to report their business income and expenses annually. But, LLCs can also choose to be taxed as S corporations or C corporations by filing Form 8832 or Form 2553, respectively.

Comparison of Tax Rates & Deductions

Sole proprietors and LLCs taxed as sole proprietorships pay income tax at their individual tax rates, which range from 10% to 37% depending on their taxable income. They are also subject to self-employment tax, which is currently 15.3%.

LLCs taxed as partnerships, S corporations, or C corporations are not subject to self-employment tax — Instead, the owners or shareholders pay income tax only on their share of the profits. 

Both LLCs and sole proprietors can deduct typical business expenses, such as rent, supplies, and equipment, to reduce their taxable income. 

Can an LLC Be Used to Reduce Taxes?

You can use an LLC to reduce taxes in a couple of ways: 

  1. Elect to be taxed as an S corporation — this allows the owners to pay themselves a reasonable salary and take the remaining profits as distributions. This can reduce self-employment tax, as only the salary is subject to Social Security and Medicare taxes.
  2. Take advantage of deductions and credits — LLCs can deduct business expenses, such as rent, supplies, and equipment, as well as contributions to retirement plans and health insurance premiums. They may also be eligible for tax credits, such as the Research Tax Credit or the Small Business Health Care Tax Credit.

Note that sole proprietorships are eligible for many of the same write-offs and credits as LLCs. So, how can you choose between them? 

How to Choose Between a Sole Proprietorship and an LLC

Here are some factors to consider when deciding whether to choose a sole proprietorship or an LLC:

Sole Proprietorship:

  • Simple to set up and maintain — A sole proprietorship requires minimal paperwork and legal formalities, making it easy and affordable to start and operate. 
  • Complete control — As a sole proprietor, you have complete control over your business decisions and operations.
  • Tax benefits — As a sole proprietor, you report your business income and expenses on your personal tax return, which can simplify tax preparation and potentially lower your tax burden.

Limited Liability Company (LLC):

  • Limited liability protection — An LLC provides limited liability protection to its owners, meaning that the owners are not personally responsible for the company’s debts and liabilities. 
  • Credibility and professionalism — An LLC is often seen as a more credible and professional business entity than a sole proprietorship, which can be an advantage when dealing with customers, vendors, and investors. 
  • Flexibility in taxation — LLCs have the option to be taxed as a partnership, an S corporation, or a C corporation, providing flexibility in tax planning and potentially reducing overall tax liability. 

In general, if you’re a small business owner with low risk and relatively simple operations, a sole proprietorship can be a decent choice. However, if you are concerned about personal liability or are looking to grow your business and establish credibility, an LLC may be a better option. It’s always a good idea to consult with a lawyer or accountant to determine the best business structure for your specific needs and circumstances.

With that said, I know that you can get business credit with a sole prop but you can get serious no-doc business lines of credit (25k, 50k, 100k) without a real entity. so I recommend getting an LLC. You can get business credit cards but banks want to see an LLC or corporation to extend business lines of credit.

How to Register Your Business 

How to Register as a Sole Proprietor

Here are the basic steps to file the necessary paperwork for forming an LLC and registering as a sole proprietor.

Of course! Here are some more conversational explanations of the steps to form an LLC and register as a sole proprietor:

How to form an LLC:

  1. Pick a name for your LLC that’s not already taken in your state and meets your state’s requirements.
  2. File an Articles of Organization form with your state’s Secretary of State office. This form typically asks for basic information about your LLC, like its name, address, and the name and address of your registered agent.
  3. Draft an operating agreement for your LLC. This outlines how your LLC is run and who owns it. Some states don’t require an operating agreement, but it’s still a good idea to have one.
  4. Get any necessary licenses and permits for your business. Depending on where you live and what you do, you might need specific licenses or permits to operate your LLC.
  5. Apply for an EIN from the IRS if you plan on hiring employees or opening a bank account for your LLC.

How to register as a sole proprietor:

  1. Decide on a name for your business, whether it’s your own name or something else.
  2. Get any licenses or permits you need to legally run your business in your area.
  3. File a “Doing Business As” (DBA) form with your state’s business registration office to register your business name.
  4. Apply for an EIN from the IRS if you plan on hiring employees or opening a business bank account.

Remember, the specific rules and requirements for forming an LLC or registering as a sole proprietor vary by state and local municipality, so be sure to do your research and follow the guidelines for your location. For example, in Oregon, you can legally run a business after filing an “Assumed Business Name” alone, but may still need local business licenses. 

Recommended: Secretary of State Offices Directory | Where to File a Business License

Frequently Asked Questions

What are the disadvantages of an LLC vs a sole proprietorship?

LLCs can be more costly and require more paperwork than sole proprietorships, but they offer greater personal liability protection. Sole proprietorships are generally easier and cheaper to set up, but leave you personally responsible for any business debts or legal issues.

What is more risky, a sole proprietorship or an LLC? Why?

A sole proprietorship is generally riskier than an LLC, as sole proprietors are personally liable for any business debts or legal issues. Forming an LLC can offer greater personal liability protection, which can help shield the owner’s personal assets from business-related risks.

How do business owners pay themselves?

Business owners can pay themselves in different ways, including salary, dividends, or draws/distributions from business profits, depending on the business structure and personal financial needs. And, some companies pay the owner’s salary with a business credit card. It’s important to consult with a financial advisor or accountant to ensure compliance with legal and tax requirements.

Conclusion: Which Structure is Best for You?

Whether you should choose a sole proprietorship or an LLC is based on a number of factors. Do you want more ease or more protection? Do you have specific tax needs? By now, you should have an idea which is best for your operations. 

However, if you want substantial lines of business credit, there is a clear choice: form an LLC…You can certainly obtain business credit cards as a sole proprietor, but to get those larger lines of credit in the tens and hundreds of thousands range, most banks will want to see a more formal business entity like an LLC or corporation.

To learn how to obtain up to $100K in business credit in as little as 30 days, join Business Credit Workshop today.

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