April 16, 2024

Free LLC

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Dreaming of starting your own business? Here are several ways to form an LLC while minimizing the startup costs.

Starting an LLC without spending anything might be a stretch, but cutting down costs is achievable. Specifically, you don't have to spend a dime on LLC formation services.

Learn how to bypass fees for LLC formation services and trim down extra LLC expenses with this guide.

What's your biggest worry about forming an LLC?

Fee Waivers for Veteran-Owned LLCs

If you're a veteran planning to form an LLC, check if the state has special provisions that waive or reduce filing fees for veterans.

For example, veterans who form an LLC in Texas between January 1, 2022, and December 31, 2025, are eligible for a fee waiver. It covers the $300 filing fee and a five-year exemption from the state's franchise tax.[1]

Meanwhile, Michigan waives filing fees like formation fees and annual statement fees for LLCs whose majority of interests are owned by veterans.[2]

Contact the Secretary of State for guidance on the waiver process.
Eligibility requirements and application procedures can change, so always check the latest information with the Secretary of State before claiming the fee waiver. You can also check if the state offers other incentives for veteran-owned businesses, such as reduced fees for business licenses and tax incentives.

Do It Yourself

If you want to save on costs when starting an LLC, consider a "do-it-yourself" approach. This way, you won't have to pay for an LLC formation service. These can cost anywhere from $50 to $300 depending on the package and state filing fees.

Each state's LLC formation process varies to some degree. You can start by learning about the general steps involved.

Can I form an LLC for free?
No. At a minimum, you need to pay the formation filing fee, which varies per state. Montana has the lowest domestic LLC filing fee at $35, while Massachusetts demands a heftier chunk of change at a whopping $500.[3][4]

Select a State

You can create an LLC in any state. Your "home state" or "domestic state" is where your business is legally formed and recognized. If you want your LLC to legally do business in another state, you then register in that area as a "foreign LLC."

Forming an LLC where you live is easier for filing paperwork and managing your business in person. However, if you primarily serve customers in another state, it might be more convenient to form your LLC there.

Do foreign LLCs pay more for formation?
Generally speaking, yes. For example, in South Dakota, the online domestic LLC fee is $150 while the foreign LLC fee is $750.[5] This is primarily due to the additional administrative processes involved in approving an already established LLC to operate in another state.

Name Your LLC

When completing the formation documents, you'll be asked to write your desired LLC name. There's usually no additional cost to naming your LLC because it's already included in the filing fee.

When deciding on a business name, it's important to do a business name search first to check if it's still available in that state.

Additionally, you must review the state's naming regulations to avoid getting rejected. For example, all states require that your business name end with some version of "Limited Liability Company" or "L.L.C." to indicate it's an LLC.

If you already have a business name in mind but aren't ready to form an LLC yet, you can reserve your desired name instead. Doing so will prevent others from using that name for 30 to 180 days.

LLCs can do business using a different name.
For an additional fee, your LLC can register a trade name or a DBA (Doing Business As) if you want to operate under a name different from what's officially registered. This is ideal if you want to use a more marketable business name or one without "LLC" at the end.

Create an Operating Agreement

An operating agreement details the important rules for managing an LLC. It can also help solve business disputes that may arise later on. Most states don't require LLCs to have an operating agreement, but it's still better to have one.

Ideally, you should have a signed operating agreement before forming an LLC. That way, all LLC members are already on the same page about how the business will be run.

But if you already have an LLC, you can still make an operating agreement. You can create one for free using online templates. Alternatively, you can hire an attorney to draft yours, but that could cost upward of $500.

What happens if my LLC doesn't have an operating agreement?
In most states, LLCs without an operating agreement are member-managed by default. This means all members have equal voting rights, which can sometimes lead to a gridlock when making management decisions.

Choose a Registered Agent

A registered agent is responsible for receiving business and legal documents on your LLC's behalf. Most states require LLCs to have one listed in their Articles of Organization.

You can be your LLC's registered agent as long as you're at least 18 years old and have a physical street address in the state where your LLC is doing business. You must also be available during regular business hours to receive the documents.

However, as the registered agent, your address will become part of the public record. Consider hiring a registered agent service instead to protect your privacy.

Get the person's consent before appointing them as a registered agent.
Some states require the appointed agent's written acceptance of the role. However, even if it's not required, be sure to appoint someone who understands the responsibility of receiving sensitive legal and tax documents.

Submit Your Articles of Organization

Once you have a business name and a registered agent, you can begin filling up the LLC's formation documents.

Commonly called the Articles of Organization, this document contains important information about your LLC, including:

  • LLC name and business address
  • LLC organizer's name and contact details
  • Registered agent's name and address
  • Business purpose

A registered agent and an LLC organizer have different roles. A registered agent serves as the LLC's point of contact and receives important documents. Meanwhile, an LLC organizer handles the paperwork to form the LLC.

You must submit the Articles of Organization and the formation filing fee to the Secretary of State.

Why do I need to pay the LLC formation filing fee?
The LLC formation filing fee is a one-time mandatory cost that establishes your LLC. Filing fees vary per state, with Montana having the lowest at $35.[3] While Tennessee has one of the highest, costing up to $3,000 depending on the number of the LLC's members.[6]

Get an EIN

An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS). It's used to identify a business entity for tax-related purposes.

You're not required to get an EIN if you have a single-member LLC. However, you might still need it down the line if you want to hire employees or open a business bank account.

Applying online is the fastest and easiest way to get an EIN. Visit the IRS website and use their Business Taxpayer Identification Number (TIN) Matching Application.

Once you enter all the required information about your business and yourself, you'll receive your EIN immediately.

You can get an EIN for free.
Some LLC formation services offer to process your EIN for an extra fee. However, the IRS never charges fees for obtaining an EIN.[7] If you register online, you can get an EIN in 15 minutes at no cost.

Select a Free LLC Package

Forming an LLC yourself can be a valuable learning experience. However, the formation process can be complex, especially for first-time entrepreneurs.

LLC services can make it easier for you by providing expert advice and support. They can answer questions, clarify doubts, and ensure you're following the correct procedures.

Fortunately, you don't always have to pay for LLC formation services. Below are some companies that can process your Articles of Organization for free.

LLC formation services aren't completely free.
Some LLC formation services may offer to process your Articles of Organization for free. However, you still have to pay for other services, like a registered agent service or an operating agreement. You'll often see the total amount at checkout.

Have you thought of using a formation service to start your LLC?

ZenBusiness

ZenBusiness has a starter package for new entrepreneurs. It includes an LLC formation service and a 100% accuracy guarantee. This means your formation documents will be refiled for free if there are mistakes due to their error.

If you decide to form an LLC with ZenBusiness, it will ask you a few quick questions about you and your business. You can also opt to use its Worry-Free Compliance service, so you never have to worry about missing your annual report's deadline.

ZenBusiness doesn't offer free registered agent services.
While ZenBusiness offers several business formation packages, its registered agent service always comes with an additional fee, regardless of which plan you choose. The current starting price for their registered agent service is $199/year.[8]

Bizee

Bizee, formerly known as Incfile, offers a Silver Package that comes with free LLC formation. You just need to pay the state filing fee.

Its free LLC formation service includes preparing and filing your Articles of Organization. The processing time varies per state, but you can pay an expedited fee if you need your LLC formed quickly.

If you form an LLC with Bizee, it will ask for your basic company information. This includes the company name, designator (LLC, L.L.C., etc.), and business purpose. You can use its website to check if your desired business name is still available.

Bizee offers free registered agent services for a year.
You won't pay any fees for the registered agent service during your first year with Bizee. Its registered agent service includes receiving and scanning important legal documents on your behalf, such as tax notices and service of process.

Tailor Brands

Tailor Brands doesn't charge a fee for LLC formation services.[9] It will handle the paperwork for you after you answer a few questions about your business.

The first thing that Tailor Brands will ask is your desired business name. It will then tell you whether it's still available in your chosen state after conducting an initial check. It'll do a more thorough check when it processes your LLC application.

Get a free business bank account.
Tailor Brands can help you open a business bank account through Mercury. Mercury accounts have no monthly maintenance fees and don't require a minimum balance to keep your account open.

Other Steps to Do After Forming an LLC

Once your LLC is formed, you'll need to do a few more things to get your business up and running while still complying with state rules. Take note of the more important ones below.

Publish a Notice of Formation

There are two types of publications you might encounter when forming an LLC:

  • LLC Formation Publication
    Newly formed LLCs must publish a notice in a local newspaper. It typically includes essential information about the LLC, like its name, address, and business purpose.

  • DBA Publication
    If your LLC wants to operate under a fictitious business name, it must publish a notice in a local newspaper about this intent. This informs the public that your LLC will be conducting business under a different name.

Only a few states, like New York and Arizona, still require newspaper publication.[10][11] The publication requirements vary per state. You typically have a few weeks to fulfill this requirement after your Articles of Organization is approved.

LLC publication costs can vary widely.
It depends on several factors, like:
  • Rates charged by the newspapers
  • Number of newspapers the state mandates the notice to be published in
  • Duration of the publication
  • Administrative filing fee for the publication (if any)

Register Business Permits and Licenses

Like any business, LLCs need to obtain various business permits and licenses. However, the number of permits and licenses your LLC needs depends on several factors, like its business purpose or location. These also affect the associated fees.

For example, some states require a statewide business license, which can cost anywhere from $20 to $300. City and county governments also each have their own set of required permits and licenses. And the fees vary from one jurisdiction to another.

Additionally, some businesses may be regulated simultaneously by several governmental offices, potentially racking up the total cost to over $1,000.

What is a franchise tax?
A franchise tax, also called a privilege tax, is a fee an LLC pays to the state for the privilege of doing business in that area. Not all states require a franchise tax. The amount also varies. For example, Delaware has a flat $300 annual tax.[12] In California, the minimum annual franchise tax is $800 and increases depending on the amount of your LLC's income.[13]

Open a Business Bank Account

An LLC provides limited liability protection, meaning personal assets (like your home and car) are protected from business debts and liabilities. However, mixing personal and business finances in one bank account can weaken this shield.

If you can't clearly distinguish between personal and business transactions, a court might hold you personally liable for business debts. A separate business bank account creates a clear separation of personal and business finances.

Opening a bank account for your LLC must be done in person by someone who has the authority to do so. You can give someone this authority in your Operating Agreement and Initial Resolution.

Get a Certificate of Good Standing.
Don't forget to bring a Certificate of Good Standing, which is commonly required by banks. Some states, like Wyoming, offer a free electronic Certificate of Good Standing.[14] While others charge a minimum fee, ranging from $5 to $20.

Create a Business Website

A website and social media presence are dedicated online spaces for your business. They're essential for marketing, customer engagement, and brand visibility in today's digital world.

You can create one yourself using a website template through popular content management systems (CMS) like WordPress and Wix. This option will cost you around $15 to $20 a month.

Alternatively, you can hire a professional web developer if you want a highly customized and unique website.

Even if you're not planning to build a business website now, it's a good idea to at least buy the domain name. This prevents others from using your LLC's name as a web address.

Beware of website domain squatters.
Domain squatters often monitor newly registered LLC names. They then purchase the corresponding domains and resell them at significantly higher prices.

Get Business Insurance

Business insurance premiums are the annual or monthly fees for coverage against various risks. While an LLC provides some legal protection to personal assets, business insurance covers expenses from unexpected events like lawsuits and property damage.

When shopping around for business insurance, consider the specific risks your LLC faces. Prioritize getting the right coverage for your specific needs and get quotes from multiple providers.

Additionally, most states require businesses with at least one employee to have workers' compensation insurance. This ensures that employees are compensated for medical expenses and lost wages if they're injured on the job, regardless of who was at fault.

Insurance can benefit your business.
Investing in the right insurance can help protect your business from financial losses. For example, business property insurance covers your LLC's furniture and equipment against damage or loss.

Budget for Annual Expenses

After forming an LLC, you still have to budget for its ongoing requirements, like the annual/biennial report filing fee and business taxes.

  • Annual/biennial report
    An annual or biennial (every two years) report generally includes updated information about your business. This includes the current address, the names of members or managers, and changes in contact details.

    Not all states require an annual or biennial report for LLCs. For example, LLCs in Arizona don't have this requirement. But for states that do, it's typically submitted to the Secretary of State, along with the filing fee.

    Non-Submission of Annual or Biennial Report
    If you fail to submit your annual or biennial report for your LLC, some states will impose late fees. These fees can accumulate over time. If the report is not filed for an extended period, the state could close your LLC.

  • Business taxes
    LLCs are treated as pass-through entities by default. This means profits and losses are passed directly to members and reported on their tax returns.

    However, LLC members are considered self-employed and must pay self-employment taxes on their share of the profits. The current combined self-employment tax rate is 15.3%, with 12.4% going to Social Security and 2.9% to Medicare.[15]

    Additionally, most LLC members must pay both federal and state income taxes. Your business might also be subject to additional taxes depending on its purpose and nature.

    Income Tax Rates for LLC Members and Managers
    The federal income tax rate is 10% to 37%.[16] Meanwhile, state income tax rates are usually based on your taxable income, like in California and New York.[17][18] However, some states like Arizona and Michigan have a flat tax rate instead.[19][20]

Bottom Line

Although services like Bizee and ZenBusiness waive their fees for LLC formation, this doesn't mean that you can start one completely for free. You still need to pay the filing fees and other expenses.

To reduce startup costs, you can take advantage of state-specific discounts and waivers, like filing fee waivers for veteran-owned LLCs. Additionally, consider a "do-it-yourself" approach so you won't have to pay others to process your LLC's paperwork.

Ultimately, there's no getting around the fact that you'll have to spend money when running a business. The initial LLC formation service might be free, but you still need to prepare for the financial responsibilities that come with entrepreneurship.

What cost-saving option would you consider using when forming your LLC?

References

  1. ^ Texas Veterans Commission. New Veteran-Owned Business Pre-Qualification Process , Retrieved 02/15/2024
  2. ^ Licensing and Regulatory Affairs. Waiver of fees for veterans, Retrieved 02/15/2024
  3. ^ Montana Secretary of State.
    Business Services Filing Fees
    , Retrieved 02/15/2024
  4. ^ Secretary of the Commonwealth of Massachusetts. Limited Liability Company Information, Retrieved 02/15/2024
  5. ^ South Dakota Secretary of State. Filing Fees, Retrieved 02/15/2024
  6. ^ Tennessee Secretary of State. Business Forms and Fees, Retrieved 02/15/2024
  7. ^ Internal Revenue Service. How to Apply for an EIN, Retrieved 03/20/2024
  8. ^ ZenBusiness. Products & Pricing, Retrieved 03/20/2024
  9. ^ Tailor Brands. LLC Formation, Retrieved 03/20/2024
  10. ^ The New York State Senate. Section 206 Affidavits of publication, Retrieved 03/20/2024
  11. ^ Arizona State Legislature Arizona Revised Statutes 29-3201, Retrieved 03/20/2024
  12. ^ Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions, Retrieved 02/16/2024
  13. ^ California Franchise Tax Board. Limited Liability Company, Retrieved 02/16/2024
  14. ^ Wyoming Secretary of State. Welcome to the FAQs, Retrieved 02/16/2024
  15. ^ Internal Service Revenue. Self-Employment Tax (Social Security and Medicare Taxes), Retrieved 02/16/2024
  16. ^ IRS. IRS provides tax inflation adjustments for tax year 2024, Retrieved 03/12/2024
  17. ^ California Franchise Tax Board. Tax rate schedules, Retrieved 03/20/2024
  18. ^ New York State Department of Taxation and Finance. Tax rates and tables, Retrieved 03/20/2024
  19. ^ Arizona Department of Revenue. Individual Income Tax Forms, Retrieved 03/20/2024
  20. ^ Michigan Department of Treasury - Taxes. Income Tax Rate Change Overview, Retrieved 03/20/2024

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ZenBusiness

Starter - $0 + State Filing Fees

  • Includes 1 optional free year of Worry-Free Compliance that renews at $199/year
  • Standard filing speed
  • 100% accuracy guaranteed
  • Other services are available with additional costs

How Much Does It Cost to Form an LLC?

Forming an LLC can be the next step for your business. But how much will it cost? Read on to learn about the different LLC formation fees.

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