What forming an LLC actually costs
The state filing fee is the price you see advertised. It is real, it varies enormously, and it is usually somewhere between a third and a half of what forming a company actually costs you in year one.
The filing fee
This is what the state charges to accept your formation documents. It ranges from under 50 in the cheapest states to several hundred in the most expensive. Nevada is at the top end at 425 once the required officer list is included. Several states sit in the 50 to 100 range.
The spread is wide enough that people go looking for a cheap state to form in. Usually that is a mistake, and the next section is why.
Where you form is decided for you, mostly
If you live in and operate from one state, that is where you form. Forming in a cheaper state does not let you skip your home state, because operating there makes you a foreign entity that has to register anyway. You end up paying both states, filing in both, and maintaining a registered agent in both.
The states people form in for real reasons - Delaware being the usual one - are chosen for their courts and their familiarity to investors, not to save money. If you are raising venture capital, that reasoning applies to you. If you are a consultancy in Ohio, it does not.
The recurring costs
The filing fee is once. These are not.
- Annual report or franchise tax. Most states want a yearly filing, and many attach a fee. Some are nominal. A few are hundreds of dollars, and a couple are calculated on your revenue or assets, which means the bill grows with you.
- Registered agent. You need an address in the state that can accept legal documents during business hours. You can be your own agent if you have one, but the address becomes public record and somebody has to be there. A service runs roughly 50 to 150 a year.
- Publication, in a small number of states. New York and Arizona require you to publish notice of formation in newspapers. In parts of New York this can run past 1,000, which is more than the filing fee by a wide margin.
The costs that are not the state's
- An EIN is free. It takes about fifteen minutes directly through the IRS. Anyone charging you for an EIN is charging you for the fifteen minutes.
- An operating agreement is not filed with most states, but you want one, and if you have partners you need one. This is the document that says who owns what and what happens when somebody wants out.
- A business bank account is usually free at the account level, though some banks charge for business accounts with low balances.
- Licences and permits depend entirely on what you do and where. A consultancy may need nothing. A food business needs several.
A realistic first-year number
For a single-member LLC in a typical state, doing nothing unusual: the filing fee, a registered agent, and an annual report. That is often 150 to 400 all in for the first year, and 50 to 200 a year after that.
In an expensive state, or one with publication requirements, the same company can cost 800 to 1,500 in year one. That is not a hidden fee, it is a real difference between states, and it is worth knowing before you file rather than after.
What to check before you file
- Your own state's filing fee and annual report fee, not an average
- Whether your state has a publication requirement
- Whether your state charges a minimum franchise tax regardless of profit
- What licences your specific activity needs in your specific city