Incorporating is one of the earliest and most important steps in creating a business. Forming an LLC legitimizes your company, protects your personal assets and creates a foundation for growth. It’s an all-important process that comes with more than a few questions. How do I incorporate? How much does it cost to start an LLC? What do I need to do to maintain my LLC? 

You’re not alone in asking these questions. It’s why we’ve put together a simple guide for business owners getting ready to incorporate. Below, you’ll learn more about what an LLC is and how it works, as well as LLC costs for startup and maintenance. Let’s dive right in!

What is an LLC?

LLC is short for Limited Liability Company. As the name implies, it’s a type of small business structure designed to protect your personal assets from any liabilities your business might incur. LLCs also enable pass-through taxation. This means that any profits generated by your business flow through to you, the owner, as income. As a result, LLC structures simplify taxes, while allowing small businesses to operate freely.

The Benefits of an LLC

LLCs aren’t the only type of business structure—there are also S Corporations, C Corporations, Partnerships and more. These other structures are more complex and have different rules for things like equity distribution and taxation. Almost every small business will stick to the LLC structure—not only because it’s simple, but because it offers several distinct benefits:

  • Limited Liability. By maintaining a clear distinction between your business’ finances and your personal finances, you limit risk for yourself. For example, if your business operates under an LLC and owes debts, lenders can’t come after personal assets like your home to satisfy those debts. You just need to maintain a corporate veil
  • Simple Taxation. As mentioned, LLC profits pass through to the owner. As a result, LLC operators don’t need to file taxes for the business. Instead, they’ll file personal income taxes with business finances factored in. It’s not just an easy way to pay taxes, it’s also a great way to avoid double taxation!
  • Legitimization. An LLC makes it a lot easier to operate as a business. For example, you’ll have an easier time applying for business credit cards, opening bank accounts or registering for services if your business is a registered LLC. Some business-specific services even require this proof of incorporation. 

There are tons of other benefits that accompany an LLC over other business structures, including simpler compliance paperwork, fewer ownership restrictions and lower cost of startup and maintenance. 

The Cost of Forming an LLC

Speaking of lower costs, how much does it cost to start an LLC? The answer really depends on which state you live in and how you go about filing your incorporation paperwork. We’ll break down the types of fees you’ll encounter below, but the simple answer is that it’s extremely affordable to form and maintain an LLC. Here’s a look at the steps and estimated costs:

Business License Fees

If you’re selling goods or services, you’ll need a business license. There are several different business licenses you might need to apply for. Examples include operating license, DBA license or permit, planning or zoning licenses, occupation permits, health permits, sign permits, etc. Most of these permits are very affordable and cost under $100 apiece. Depending on the nature of your business, you could pay anywhere from $100 to $1,000 for all required licenses and permits. 

Filing for Incorporation

This is the application you’ll need to file to incorporate as a Limited Liability Company. Every state’s application process and costs are different, but most are incredibly affordable. For example, states like Arkansas, Colorado and New Mexico charge a flat $50 fee to incorporate as an LLC. On the high end of the spectrum, states like Tennessee and Massachusetts charge $300-500 to file articles of incorporation. The average hovers around $120, and you’ll need to file with the Secretary of State. 

Reserving an LLC Name

Not quite ready to incorporate, but want to reserve your business’ name? Prepare to pay a small one-time fee. How much does it cost to reserve an LLC name? You guessed it: it depends on the state. In some states it’s as cheap as $10; in others, you’ll pay $100+ to reserve a name ahead of filing. 

Even if you factor in other expenses like reserving a domain name or paying for your business’ phone number or email, the cost of starting an LLC is relatively small. Depending on where you live, expect to kickstart your LLC for between $250-$500, on average. That cost will rise depending on the number of business licenses you need. 

LLC Maintenance and Ongoing Costs

Now that you’ve got your business incorporated and an LLC on file, you’ll need to maintain it. There are a few very important costs to budget in as you look toward the future of your business. Here’s a quick breakdown of those costs:

Registered Agent Fees

A registered agent is a legal entity that’s responsible for receiving and filing legal documents on behalf of your LLC. Many people choose to make themselves the registered agent of their LLC at no cost. That said, remember that it also requires an investment of time and energy to manage these filings. Those who want to focus solely on growing their small business will delegate someone else as the registered agent: usually a lawyer or accountant. The annual cost of retaining these services hovers between $100-$300 annually.  

Annual LLC Fees

To maintain an active LLC, you need to file an annual report. This is typically a very quick update of any changes to the company’s name, operating location, services, etc. Most LLC annual filings are about a page long and many sites automate the process. That said, there’s usually a state-specific fee that accompanies this filing. Expect to pay between $50-$150 on average; however, some states have no filing fee, while others like Texas base the fee on a percentage of gross annual revenue. 

Annual Franchise Tax

Also called a “privilege tax,” this fee is one you might need to pay if you do business across state lines. While there are fewer and fewer states that levy franchise taxes these days, some still do, including Alabama, Arkansas, California, Delaware, Georgia, Illinois, Louisiana, Mississippi, New York, North Carolina, Oklahoma, Tennessee and Texas. If you do business in these states—even if you’re not incorporated in them—expect to pay a figure relative to the amount of revenue you generate in that state. 

Renewal Business License Fees

Remember those business licenses that you applied for when starting your LLC? You’ll need to reapply for them annually, or as they’re set to expire. The cost to reapply is generally the same as the initial application price. If you know which permits are crucial for the operation of your LLC, you’ll have no trouble budgeting for them in your annual expenses. Just be sure to keep an eye on permit costs—they have a tendency to rise every few years to keep pace with inflation. 

Again, there are a few other ongoing costs worth considering. You’ll need to pay to maintain your business’ website URL and any business services linked to your LLC, for example. While small, these figures can add up. It’s a smart idea to track them all in your accounting software under Operating Expenses

How Much Does an LLC Cost, Really?

After all this, it comes back to the simple question of “How much does it cost to start and maintain an LLC?” As mentioned, the number will vary depending on a great many factors, including what state you’re incorporating in and what kind of business you’re operating. Ballpark, you can expect to spend between $250-$500 to start your LLC and roughly the same amount maintaining it every year. 

Keep in mind that these are only basic averages. An LLC for an ecommerce company that sells locally will be dramatically lower than the cost to incorporate an LLC that does business in multiple states and requires multiple permits. We advise every person to do specific research before incorporating, to understand the industry- and state-specific costs of doing business as an LLC.

No matter how much it’ll cost you to start and maintain your LLC, one thing remains certain: it’s well-worth the confidence that comes from operating within the confines of an incorporation structure designed to support your small business’ growth. As you file your paperwork and pay your fees, think of it as a down payment on peace of mind. 

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