There are many reasons that can motivate you to jumpstart your dream and become a small business owner. Maybe you’re all set to take the plunge and turn your side hustle into your full-time gig. Or maybe the time has come to strike out on your own and make your entrepreneurial dreams a reality? Regardless, good for you for taking the first steps!
As you will soon realize, starting a business takes more than just an idea or product or even service. It also takes a fair amount of investment to start a Limited Liability Company (LLC). But the fee for forming an LLC, which is generally the lowest cost way that one can form a legal entity, can greatly vary by state. So let’s take the first step and learn about the cheapest states where you can form your business and what you will need to get started.
Cheapest States to Form an LLC
The most expensive state to form a business in is Massachusetts, with a filing fee of $520 and an annual renewal fee of another $500. But don’t worry. Not all states are created equal...at least not when it comes to business formation and renewal fees. Here’s a list of the cheapest states to start a business and some reasons why they may be an ideal place for a business formation.
Kentucky — Filing fee: $40. Renewal fee: $15. When it comes to location, Kentucky is based in a sweet spot of the country. It borders major states including Ohio, Indiana, Tennessee and Virginia and is less than a day’s ride away from two-thirds of the country. The state also offers business owners incentive programs that provide small businesses with financial assistance.
Hawaii — Filing fee: $50. Renewal fee: $15. Although small businesses in Hawaii cater to the millions of tourists every year, they also felt the brunt of the Coronavirus pandemic, with 45 percent of businesses reducing their workforce. But when it comes to LLC formation and starting a business, you’ll find lots of support in the Aloha State, not to mention great weather.
Michigan — Filing fee: $50. Renewal fee: $25. Though this state ranks at number nine when it comes to the cost of a business formation, Michigan is ranked as the fourth most affordable state to live in.
Iowa — Filing fee: $50. Renewal fee: $60. Unlike the rest of the states on this list that are required to pay for annual renewals, Iowa’s renewal fee is paid every other year. Iowa is also one of the most affordable states to live in, with reasonably priced housing, low cost of living and no personal property tax.
Utah — Filing fee: $70. Renewal fee: $20. Utah also boasts a high quality of life, low cost of living and a flat tax of 4.95 percent, regardless of how much you earn.
California — Filing fee: $70. Renewal fee: $800. The renewal fee is high, but when considering that the Golden State boasts a GDP of close to $3 trillion dollars, it may be where you want to form a business. After all, if California was its own country, it would have the fifth largest economy!
Delaware — Filing fee: $90. Renewal fee: $300. In addition to being on this list for its cheap state filing fee, this state also boasts no sales tax, as well as privacy protections. Delaware LLCs are not required to include personal information of board members, including names and phone numbers. Filings can effectively be made anonymously.
If you are planning on starting a business in one of the 15 states listed above, then you are off to a great start for forming a low-cost LLC. Granted, the renewal fee for California and Delaware are disproportionally higher when compared to the other 13 states. Other items and fillings that will require your attention as you lay the foundation of starting your own business will include:
Naming your business. Make sure that the name you have in mind is not already taken. Conduct a quick check through your Secretary of State website or use Incfile’s Business Name Search Tool. Make sure the name of your business is catchy and, above all, available!
Open up a business bank account. This should be dedicated to your business where you can make and accept payments. Having a separate bank account for your business will also be a big help when it comes to tax time.
Get an EIN — Employer Identification Number. You’ll need it for your business, especially when it comes to filing your taxes.
Name a Registered Agent. Your Registered Agent will receive all of your important documents and make sure that you do not run afoul of any filings and miss important dates. Your agent will also receive any legal summons or actions, sparing you from dealing with any hassle, such as the delivery of a lawsuit in front of clients or customers.
Now that you know the cheapest states to start your business, take the next step working with a professional to help navigate you through the business formation and filing process. Incfile has helped over 500,000 small business owners get started!
Peter Mavrikis is an author and editor with over 25 years of experience in publishing. He has worked as the Editorial Director for Barron’s Educational Series, as well as Kaplan Test Prep, where he ran the test prep, foreign language, and study guide divisions. Peter has also written several books on history, exploration, science, and technology.