If you have always wanted to form an LLC but wondered about the cost and what is involved, you certainly aren’t alone. While creating a sole proprietorship is super easy and fast, it still does not protect you against lawsuits toward your personal assets. Neither does it provide the pass-through taxation that an LLC features for your business.
So, when it comes to cost, the amount of money you invest in an LLC is well worth the cost. The following information will detail the advantages of setting up an LLC and will provide the amount you should expect to spend to establish your business as an LLC entity.
What Is an LLC and Why Should I Consider It?
If you currently have set yourself up as a partnership or sole proprietorship, you should strongly consider forming an LLC. You can receive the same legal protection as you do with a corporation but with less hassle. An LLC provides the small business person with a way to legally protect themselves, and do so more conveniently. If you want to keep your personal assets protected and enjoy certain tax benefits, forming an LLC is typically a better choice.
So, what exactly is an LLC?
An LLC is an abbreviation that stands for limited liability company. The entity provides limited liability, like a corporation, but can be more easily established and maintained. As a business, an LLC also offers pass-through taxation, much like what you get by being a partnership or sole proprietorship.
A Way to Protect Your Personal Assets
An LLC limits an owner’s personal liability. For instance, if you are a sole proprietor and a business customer sues you, he or she cannot come after personal assets, such as your car or house. The only assets they can go after are those under your business’s name. If you have a car or house, and work as a sole proprietor or in a partnership, you should strongly consider becoming an LLC.
Unlike a corporation, though, you are not considered distinct, as an LLC, when it comes to income tax. You can pass your taxed earnings to your personal tax return. Therefore, you will not file a separate tax return for an LLC.
Nailing Down the Cost
This question comes up time and again when a person wants to set up an LLC and therefore wonders – how much is an LLC? What you pay to establish an LLC is small in comparison to what you have to pay to set up a corporation. Plus, the amount you pay depends on where you set up your business.
Generally, it is best to establish your LLC where you plan to to do business. For example, if you primarily do business in California, you should establish your LLC there. However, if you merely want to set up an LLC for conducting real estate transactions, or you are doing business outside the U.S., you may want to consider an income-friendly option, such as Wyoming, Delaware, or Nevada.
For instance, most venture capitalists are familiar with Delaware business law, and therefore are more inclined to fund an LLC that is based in Delaware. On the other hand, states, such as Nevada and Wyoming, do not require the payment of a franchise tax. Plus, Wyoming’s filing fee is super low (only $52, as of 2020).
An LLC Will Save You Money in the Long Run
Where you choose to set up your LLC then may be based, to a large degree, on your answer to the question, “How much does an LLC cost?” In other words, “What will establishing the business cost you in the long run?” Regardless of where you establish you LLC, remember that this type of expense is negligible when you consider the liability protection and tax advantages an LLC provides.
Once you find out, approximately, “How much is an LLC?” you can begin setting up the entity. This process is fairly simple, when compared to setting up a corporation. First and foremost, you need to obtain a business name. Go to the Secretary of State’s website for your state and select a name. Be sure you have an alternative choice if your business name has been taken. Having a unique business moniker will prevent problems with trademark infringement. The state will let you know if the name you have chosen is unique.
Include “LLC” in the Business Name
When you name your business, you need to have “limited liability corporation” or “LLC” in the name. After you make sure the name can be used, you are ready file the Articles of Organization.” This part of the process may vary a little from state to state. In some states, you only have to fill out a standard form and include your business’s name, address, and the names of the owners. Usually, each owner must sign the document.
Obtaining a Registered Agent
You will also need to get one person to serve as your registered agent. This person receives legal documents, pertinent to your business, during regular business hours. Usually, it is best to hire someone who is readily available to do this. You can also requisition a company that offers registered agent services.
Next, you need to pay the required fees to register your LLC. Therefore, this part of the registration process will help you answer, in part, “How much is an LLC?” While the registration fee can be as little as $100 in some places, it can cost several hundred dollars in others. Therefore, make sure you know how much you will spend before registering.
Some states require that you publish a notice that you are creating an LLC. This is normally done in an area newspaper. You may have to publish the notice several times over several months. In some instances, you may have to file an “affidavit to publish” with the state. This type of step can slow down the LLC process. Therefore, check with the state where you are registering to see if this step must be followed.
Creating an Operating Agreement
When registering an LLC and when figuring how much does an LLC cost, you also need to determine what you want to include in your LLC operating agreement. While this document does not have to be filed with the state, you should have one created to help you in managing your new LLC business. An operating agreement can be used to resolve internal disputes and paint a clear picture on how your LLC will be run.
Therefore, the purpose of the document is to define the responsibilities and rights of the owners. An operating agreement then can be likened to a corporation’s bylaws or a partnership agreement. These types of documents provide the guidelines needed to handle internal conflicts or manage transfers of ownership.
The operating agreement should cover owner rights and responsibilities, percentage interests, asset and profit allocation, and schedules for owners’ meetings. If the document is detailed, it will also include the managerial roles assumed by each owner.
Before you register an LLC, go over the costs involved. These costs include the formation fee, annual filing fees, and franchise taxes.