Thursday, October 16, 2014

Costs of Incorporating or Forming an LLC

The decision to form an LLC or incorporate can help you protect your personal assets from debts and obligations of your business. Unfortunately, many small business owners avoid taking this step because they assume it is too expensive. For a few hundred dollars, these small business owners could form an LLC and gain valuable protection that could one day protect them in case of lawsuit.

Incorporating or forming a limited liability company is not necessarily expensive. There are many entities to choose from, as well as states, each with their own costs. You can also choose to work with an attorney to incorporate your business, which is typically the most costly option. If you want to save money, you can do your own incorporation, but this can be tricky because even simple paperwork mistakes can cost you more later. For many small business owners, the best option is using a corporate service company, which is an affordable option to make sure your paperwork is correct and filed promptly with the state.

The following are expected costs if you are ready to incorporate.

Filing Fees

A filing fee is necessary to create an LLC or corporation. The exact fee will depend on the state in which you incorporate, but it usually ranges between $50 and $350. The cheapest option is forming a Delaware LLC, as the state has the lowest filing fee in the United States. Just remember that cost is not your only consideration, and Delaware incorporation may not be in your best interest.

Publication Fees

If you will incorporate in Pennsylvania, Arizona, Georgia or Nebraska, you will need to pay a publication fee of $150 to $300.

Annual Report Fees

This fee usually ranges from $25 to $200 and depends on your state of incorporation.

Franchise Taxes

This fee will be ongoing and paid every year. Most small businesses pay between $800 and $1,000, and there is usually a minimum and maximum amount of taxes you will pay depending on the entity type you choose and the number of shares you issue. For example, the franchise tax in Delaware is a minimum of $350 but may be as high as $180,000 for large corporations. Delaware has the lowest franchise taxes in the country.

Other Costs

You should also take into account other fees that depend on the type of business you operate. For example, you may incur costs to obtain necessary business licenses or set up a business bank account.

If you are interested in incorporating or forming an LLC with as little cost as possible, start by considering the state in which you will incorporate. You do not need to operate in the state you choose, but it may be more affordable to choose your home state if it is the only state in which you operate. If you are thinking about another state, look at their tax rate and compare it to your own.

It can also help to go over your options with a corporate services company or attorney to choose the right business structure. This decision should be made not only considering incorporation costs but also tax advantages, ongoing maintenance, formalities and ownership structure.

Christine writes for USA Corporate Services, Inc, a corporate services company that helps small business owners take the next step to incorporate. Learn more here.
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