Unfortunately, many small business owners mistakenly believe that incorporating is very expensive and thus miss out on the many advantages to forming an LLC or corporation, including limited liability. The cost of incorporation does not need to be excessive, but it depends on how you go about the process and where you incorporate.
How Much Does it Cost to Incorporate?
Incorporating your business is probably not as expensive as you may think. Here is what you should expect in terms of cost.
There are several ways to incorporate your business. One option is using an attorney who offers incorporation services. This is generally the most expensive option and may be cost-prohibitive for many small businesses.
Another option is incorporating completely on your own and handling all of the paperwork. This may seem like a good option if you have a small budget, but you will be taking on additional stress and doing it on your own may cost you more. For example, it can be easy to make mistakes that can increase your costs, and you will have no help if you have questions.
Many small businesses choose to use a corporation service company. This option is much more affordable than using an attorney, and you will have access to the help you need to avoid potentially costly mistakes and incorporate or form an LLC quickly. Many companies offer incorporation packages that start under $100 and depend on how much you want to do on your own to help you save.
Costs of Incorporating
When you incorporate, there are a few fees you can expect. Each state has its own fee structure, but expect the following to be present.
1. Filing fees
Filing fees vary by state and are typically between $50 and $350. If you want to minimize filing fees, forming a Delaware LLC may be a good option, but it may still be cheaper to incorporate in your own state when you consider the other costs. The filing fee is paid when you file your Articles of Incorporation or Certificate of Incorporation with the Secretary of State. You can find your state's filing fee by visiting the Secretary of State website.
2. Business license
Many states will require that you obtain a business license.
3. Annual report fees
This fee ranges from $25 to more than $200, depending on where you incorporate.
4. Publication fee
Arizona, Nebraska, Pennsylvania and Georgia require you to pay a publication fee of $150 to $300 when you form a corporation.
5. Legal fees
If you will have an attorney helping you incorporate, you can expect legal fees of anywhere from $500 to $5,000.
6. Franchise taxes
This tax ranges by state but typically falls between $800 to $1,000. Delaware has one of the lowest franchise taxes, which is why many small businesses choose to form a Delaware LLC, even if they do not do business in the state.
There are several ways to limit these costs, but the best way is to carefully choose your state of incorporation. Check each state's incorporation costs as well as ongoing requirements to make your decision. If you only plan to operate in one state, it is often cheaper to incorporate in your state. If you do decide to incorporate in another state, consider the tax rate in the state you are considering and the costs of incorporating there compared to your home state.