Is It free to form a Limited Liability Company?

Forming an LLC (Limited Liability Company) is a good way to separate your business from your personal savings and assets, and save on tax. The good news is that you don’t need the help of a lawyer to form your LLC. Although it’s not entirely free to form your LLC yourself,  (state filing fees are unavoidable), it’s a good way to gain expertise and knowledge. 

How much does it cost to form your own LLC? 

Startup fees for forming an LLC usually consists of state- and filing fees. However, there are other additional costs you will need to keep in mind. 

Costs to form your LLC:

Filing fees: This is your biggest expense, and depending on your state, can range from $40 and $500. 

Publication requirements: Some states like Arizona, Nebraska, and New York require that LLCs publish a statement of formation in one or more newspapers, letting the public know that your LLC exists. This can range in price between $40 and $2000 depending on your state and the number of weeks the ad in a publication is required. 

Name reservation fees: All LLCs require a unique name that is not being used in the state, and must include the initials LLC or L.L.C. Your business name should not be similar to an LLC or other business entity that’s already on the Secretary of State’s records. Each state has a unique set of requirements for names. If you’re forming an LLC in Alabama, you will also need to reserve your company’s name for a fee of $10-$28.This can be done online or filed by mail. Reserving a name is optional for all other States.

Maintenance costs: In addition to your LLC filing fees, you will need to pay regular maintenance fees, also called reporting fees, to keep your company in compliance.This is often an annual or biennial reporting fee, which includes updating the name, address, and ownership of the LLC.  The fee differs from state to state. In some states, like New York, reporting fees can increase depending on the number of owners the LLC has.

Franchise fees: These taxes, levied by some states yearly, do not replace federal and state income taxes, but are levies that are paid in addition to income taxes. This is most often a flat tax, but can also vary according to your LLC’s annual earnings and tax rules within each state.

Multiple state formation: As a general rule of thumb, you will want to form your LLC in the state you plan on doing business. However, if you plan on doing business in other states as well, you will need to register your LLC in some of those states. You will then have to complete the appropriate forms and pay the applicable fees, which may mean additional registration fees. Registering your LLC in another state or states, does not form a new LLC identity; it obtains permission to do business there. 

Are professional formation services worth their fees?

While it may be tempting and more cost-effective than using a registered business formation service to form your LLC for you, it’s advisable to weigh up the pros and cons, and then, based on your business requirements, make an informed decision. 

If you decide to use a professional LLC formation service to help you form your business, you can still do so at a minimal expense. Most basic packages start at around $40 and can range up to about $300.  Although business formation companies generate most of their revenue from upsells, using a professional service is not necessarily something you would want to dismiss. Some of these additional services can help speed up the formation process, saving you the burdensome task of completing legal paperwork and ensuring your company is compliant. This review lists the 7 best LLC services of 2020 , their fees and the services each offer to handle the entire LLC formation for you. 

Formation services worth the money

Some of pros of using a formation services include: 

  • Privacy: Although you can be your own registered agent, it is generally not a good idea.  Benefits to hiring a registered agent give you a level of anonymity (your physical address will not be listed on the public record), and peace of mind knowing that your business is compliant with all state regulations. Some formation services offer one full year of free registered agent service. 
  • State compliance: You will want to make sure that you keep track of official notices like annual report filings. A registered agent will make sure you are informed about any paperwork you need to review and on which you need to take action. This will help you stay in good standing because you’ll avoid missing filing deadlines that could result in fines for noncompliance.
  • Reduced formation times. Lower-level formation packages take at least two weeks or longer to file your formation with the state. Higher-level packages have a much shorter time frame. 
  • Business License Search. A professional formation services will research which licences you need on local and state level, allowing you to focus on running your business.

Services you can skip

Although these items below are important for your business, with a little bit of effort and time, you can get them free online.

  • Creating your LLCs Operating Agreement:  This is an internal document which means you don’t need to file it with the state. 
  • Obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) is free.

In summary

Choosing whether to form your LLC yourself can be more cost-effective, and with a little effort and time, is possible. However, although you’ll pay a little more when using a formation service, you’ll also get the peace of mind knowing your submissions will be filled out timeously and correctly, giving you the freedom to focus on running your business.

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