How Much Does It Cost to Start an LLC?

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Choosing the right state to form your LLC can significantly affect your costs. Some states offer lower initial fees but may impose additional requirements, such as a profit threshold or more complex regulatory rules. It’s important to research each state’s specific requirements to ensure you’re making the most cost-effective decision for your business.

Why LLC Costs Vary by State

LLC formation costs aren’t one-size-fits-all. Each state sets its own rules and fees, which is why startup expenses can differ dramatically depending on where you register. Factors like filing fees, ongoing compliance requirements, and the cost of a registered agent vary by jurisdiction. 

Additionally, if you plan to operate in multiple states, you'll need to register as a foreign LLC in each one, adding further expenses. These differences make it important to research your state’s specific requirements before getting started.

State Filing Fees: A Breakdown of LLC Costs

State filing fees for forming an LLC can vary significantly depending on where you choose to form your business. These fees play an important role in the overall cost of setting up your LLC, and they can range from as low as $50 to over $800 in some states. 

For example, Wyoming charges an affordable $100 to form an LLC, while California requires a hefty $800 just for the initial filing. Understanding the fees in your chosen state is essential for accurate budgeting and avoiding unexpected costs.

What Goes Into the Cost of Forming an LLC

LLC costs go beyond just filing paperwork. Here’s a breakdown of the common expenses involved:

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It’s also worth noting that LLC formation costs are the same for single-member and multi-member LLCs—ownership structure doesn’t impact the filing fees.

Cheapest and Most Expensive States to Start an LLC

Some states offer affordable options for LLC formation, while others have higher costs but may come with additional benefits such as favorable tax laws or business-friendly environments.

Here's a quick look at both ends of the spectrum:

• Kentucky: Charging just $40 to register your LLC and $15 for annual reports, Kentucky stands out as one of the cheapest states for both formation and long-term maintenance.
• New Mexico: With an initial filing fee of only $50 and no annual report requirements, New Mexico offers one of the lowest-cost options for LLC owners looking to minimize ongoing obligations.
• Wyoming: Starting an LLC costs just $100, with a low $60 annual report fee, making it one of the most affordable and business-friendly states for LLC formation.

However, there are states with higher fees, which may be justified by additional services or tax advantages for businesses:

• California: Although the filing fee is only $70, California imposes a minimum $800 annual franchise tax, making it one of the most expensive states to set up and operate an LLC.
• Nevada: Forming an LLC in Nevada requires a combined $425 fee, which includes the Articles of Organization, Initial List, and Business License. Annual renewals cost an additional $350, placing Nevada among the priciest states for LLC formation.
• Massachusetts: With a $500 initial filing fee and a $500 annual report fee, Massachusetts is one of the most costly states for both starting and maintaining an LLC.
  

In addition to initial filing fees, every LLC is required to file annual reports and pay annual fees to maintain its active status. For instance, Delaware charges a $300 annual franchise tax for LLCs.

Many states also require LLCs to have an Operating Agreement, which, while not necessarily expensive to create, is a key part of the formation process.

Additional Costs When Starting an LLC

While state filing fees are a significant part of the cost of forming an LLC, there are other expenses to consider before you start your LLC. These include registered agent fees, legal documents, and business licenses. To maintain good standing and avoid penalties, LLCs must also follow state-specific rules and regulations.

Registered Agent Fees

Every LLC must designate a registered agent to receive legal notices and documents on behalf of the business. In most states, the registered agent must have a physical address in the state where the LLC is formed.

• Registered agent services typically cost $100 to $300 per year, though some states allow you to act as your own registered agent without additional charges.
• The registered agent's address must be listed in your LLC’s formation documents, so it's important to ensure your agent is reliable and accessible.

Operating Agreement and Legal Fees

An Operating Agreement outlines the ownership and management structure of your LLC. While not all states require it, having one is essential for setting clear expectations among members and protecting your business from potential disputes.

• If you hire an attorney to draft a custom operating agreement, expect to pay anywhere from $300 to $1,500, depending on the complexity of your business.
• It’s important that your LLC’s legal documents comply with state and federal laws to avoid penalties and ensure smooth operations.

Business Licenses and Permits

Depending on the nature of your business, you may need specific business licenses and permits to operate legally.

• The cost of a state license can range from $50 to $1,000, depending on the industry and state requirements. Some businesses, like those involved in construction or selling alcohol, may require additional specialized permits.
• Be sure to check both local and state regulations to ensure you're in compliance with all necessary licenses and permits to avoid fines or operational shutdowns.

DIY vs. Professional LLC Formation Services

When starting an LLC, one of the first decisions you'll need to make is whether to handle the formation process yourself (DIY) or use a professional service. Both options come with their own advantages and potential drawbacks, so it’s important to weigh factors like time, budget, and your comfort level with legal paperwork before deciding.

According to data from the U.S. Census Bureau, a significant majority of small businesses that formed as LLCs in 2023 completed their registration without legal assistance. This demonstrates that many entrepreneurs, especially those with simple business structures and little funding, may succeed with the do-it-yourself strategy. However, it's important to recognize that while DIY formation can be cost-effective, it may not be suitable for all business types.

Comparing DIY vs. Professional LLC Services

Here’s a quick comparison of what to expect from each option:

DIY LLC Formation

Opting for a DIY approach is a great choice if you're comfortable with legal paperwork, have the time to research state-specific requirements, and want to save on upfront costs. DIY allows you to pay only for state filing fees, which can cost as little as $100, making it a budget-friendly option.

However, it’s important to note that you’ll be responsible for staying on top of ongoing requirements, such as filing annual reports and paying state fees. If you miss a deadline, it can result in penalties or the dissolution of your LLC.

DIY is best for those who:

• Are comfortable with legal research.
• Have time to learn the requirements of forming an LLC in their state.
• Want to save on upfront costs.

Professional LLC Formation Services

Professional LLC formation services, on the other hand, streamline the entire process, saving you time and reducing the risk of errors. These services often include the cost of state filing fees, along with additional features like compliance assistance and customer support. Many also offer help with ongoing tasks like filing annual reports and managing deadlines, ensuring you stay in good standing.

Although professional services come at a higher price, typically between $200 and $500, they provide peace of mind by taking care of the legal complexities and ensuring everything is done correctly from the start.

Professional services are ideal for those who:

• Want to minimize errors and avoid legal pitfalls.
• Prefer a quick and hassle-free setup process.
• Need ongoing support to ensure compliance.

Annual and Ongoing Costs of Maintaining an LLC

Once your LLC is up and running, it’s important to be aware of the ongoing costs required to keep your business in good standing. These costs include annual reports, franchise taxes, and other state-specific fees, which can vary widely. Be sure to check the rules each year to avoid missing important deadlines and facing penalties.

If your business has multiple members, or you’ve transitioned from being a single-member LLC, keeping track of these annual fees is especially crucial. Missing a deadline could lead to fines, penalties, or even the loss of your LLC status.

Annual Report and Renewal Fees

Most states require LLCs to file annual reports to maintain active status. These reports often come with associated fees, which can range from $50 to $800, depending on the state. Failure to file on time can result in significant fines or the automatic dissolution of your LLC.

Here’s a quick look at the annual report fees and deadlines in some states:

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Franchise Taxes and Other State Fees

In addition to annual report fees, many states charge franchise taxes or similar ongoing fees to maintain your LLC. These taxes often depend on your LLC’s revenue, net worth, or capitalization, and the structure of your business. Franchise tax rates and rules vary from state to state and can significantly impact your ongoing LLC costs. 

Here are some examples:

• California: Requires a minimum franchise tax of $800 per year, regardless of income. LLCs making over $250,000 annually must pay an additional fee based on gross income, ranging from $900 to $11,790.
• Delaware: Charges a flat $300 annual franchise tax for LLCs, with no income-based calculation.
• Texas: Applies a franchise tax of 0.375% on gross receipts for most retail and wholesale LLCs and 0.75% for other types of businesses. LLCs with less than $2.47 million in annual revenue (as of 2024) are exempt.
  

These ongoing fees are essential to factor into your business’s budget, along with the initial setup costs, to ensure you’re prepared for annual obligations.

Staying on Top of Deadlines

Missing important deadlines, such as those for annual reports or franchise taxes, can result in penalties, interest, or even the loss of your LLC status. To avoid these issues, it’s crucial to:

• Keep your records up to date and ensure all required filings are submitted on time.
• Set up reminders for annual deadlines to prevent missing critical dates.

Planning ahead and incorporating these ongoing costs into your budget will help you maintain your LLC’s good standing and avoid any surprises in the future.

How to Save Money When Starting an LLC

Starting an LLC doesn’t have to break the bank. With careful research and a strategic approach, you can minimize costs while ensuring your LLC is set up properly. Here are some key strategies to help you save money during the formation process:

1. Research Costs in Your State

The cost to start an LLC varies significantly by state. It’s important to know the fees and requirements in your home state, but also consider states with lower formation and annual fees. Some states offer more affordable LLC formation options, which can help you keep initial costs down. Filing through your Secretary of State online portal—such as the one in Texas—can speed up the process and reduce paperwork errors.

2. Choose a Unique LLC Name Early

Choosing an LLC name that is original and available can save you from unnecessary fees. If the name you want is already taken, you may have to spend extra money to modify it or pay for a DBA (Doing Business As) filing. By researching the name early on, you can avoid the extra work and cost of rebranding.

3. Write Your Own Operating Agreement

An operating agreement is essential for defining your LLC’s ownership and management structure. While you can hire a lawyer to draft one, it’s often possible to create your own with free online templates. By doing this yourself, you can avoid expensive legal fees. Just make sure the agreement complies with state laws and is tailored to your business needs.

4. Stay On Top of Annual Fees

Keep track of annual report fees and state franchise taxes to ensure you don’t miss any deadlines. Missing a deadline can lead to fines or the risk of your LLC losing its status. By staying organized and paying attention to these annual fees, you can avoid unnecessary penalties.

5. Choose the Right State for Your Business

In addition to considering fees, it's important to think about where your LLC will operate. While some states have lower costs, they might not be the best choice for every business. Choose a state that offers low fees while also aligning with your business goals and operational needs. If you’re operating primarily in one state, forming an LLC in that state can save you from additional costs related to foreign LLC registration.

States with Low LLC Formation Costs

Some states are particularly affordable. Here’s a quick look at some of the most budget-friendly options:

Final Thoughts: Budgeting for Your LLC Startup Costs

Starting an LLC can be a straightforward and cost-effective process if you plan ahead and make informed decisions. By understanding your state's requirements, choosing the right services, and taking advantage of free tools, you can significantly reduce your formation costs. With careful budgeting and strategic planning, your LLC can thrive without breaking the bank.

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If you’re serious about running your business like a pro—and not just forming one—Tofu is the upgrade you need. Download the Tofu App and simplify your invoicing starting today.

FAQ

What are state filing fees?

These are the required charges you must pay when you file your LLC with the government. Every state sets its own fee, which covers processing documents like the Articles of Organization. You must pay a state filing fee to legally register your LLC, and the cost can vary significantly depending on the state's LLC rules.

Why do LLC formation costs vary by state?

Formation costs differ because every state sets its own filing requirements, compliance rules, and fee structures. Some state LLC systems offer lower fees and simpler requirements, while others may charge more for ongoing compliance, including annual LLC fees. If you're thinking about forming in a different state, compare both initial and long-term costs before deciding.

What additional costs should I expect when starting an LLC?

In addition to the state filing fee, LLC owners should budget for other common expenses. These include hiring a registered agent, preparing a customized LLC operating agreement, and obtaining business licenses or permits. These costs can vary based on the state LLC you form and the type of business you’re running.

Should I use a professional LLC formation service or do it myself?

Whether you choose to set up an LLC on your own or use a service depends on your time, budget, and comfort with legal paperwork. DIY methods are cheaper but require research into how to file your LLC correctly. Professional services can help you register your LLC quickly and offer compliance assistance, especially when filing an LLC online.

What are the ongoing costs of maintaining an LLC?

Once you form your LLC, you’ll face ongoing expenses like annual LLC fees, state franchise taxes, and annual report filing fees. These costs differ by state LLC rules and may be higher for LLC owners with more complex operations. Staying on top of these obligations helps keep your business in good standing.

How can I save money when starting my LLC?

To cut startup costs, research how much it really costs to set up an LLC in your state. Use free government resources to file your LLC and consider managing your documents without a lawyer. You can also register your LLC using budget-friendly LLC online platforms that bundle services to reduce the average cost.