Many Americans dream of starting a business and maybe you might be one of them. Regardless of the reason behind your motivation to jumpstart your dream, good for you for taking the first steps!
But you will soon realize that starting a business is daunting and it takes more than just having a low-cost idea or product. To launch a successful Limited Liability Company (LLC), generally the quickest way to form a legal entity, you'll need a fair understanding of your state’s business ecosystem and investment costs. The incorporation fee for forming an LLC can greatly vary by state and have an impact on your business startup costs.
So, let’s take the first step and learn about the best and cheapest states where you can form your business and what you will need to get started.
If we just look at costs, Kentucky has the lowest, one-time registration fee of $45. The LLC renewal fee, which is an ongoing cost associated with starting a business, is an affordable $15.
But that isn't the complete picture. Unfortunately, not all states are created equal...at least not when it comes to business formation rules, tax environment and fees. For aspiring entrepreneurs, these can impact the realities of starting a business more than you can imagine.
There are two things to pay attention to while looking for the cheapest state to start a business:
While some states have low incorporation fees, the renewal fees can be high — a case in point is California. Others might have a slightly higher filing fee and no renewal fee.
15 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 — LLC 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.
Mississippi — LLC Filing fee: $50. Renewal fee: $0. Known for its low corporate tax rate, this state also has a diverse and educated workforce, thanks to the 37 in-state colleges and universities.
Missouri — LLC Filing fee: $50. Renewal fee: $0. Strong community, low cost of living and $0 renewal fee are just a few reasons why many small businesses opt for formation in this state.
New Mexico — LLC Filing fee: $50. Renewal fee: $0. The temperate climate and business-friendly tax policy play a big part for many entrepreneurs looking to start a business in New Mexico.
Colorado — LLC Filing fee: $50. Renewal fee: $10. Known for its beautiful landscapes, this state also attracts millions of visitors annually, many of whom enjoy an outdoor lifestyle and the activities it offers. Some of these visitors also become full-time residents. In the last 10 years, the population jumped by 14.8 percent, increasing from 5 million to 5.8 million.
Hawaii — LLC 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 — LLC 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 — LLC 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 — LLC 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 — LLC 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.
In the perfect scenario, your startup can grow anywhere you want it to. However, the state you opt for your LLC can have a significant impact on your accessibility to resources, ease of doing business, success rate and startup costs.
Now that we’ve helped you identify the cheapest and best states to start your business, it’s time to take the next step by working with a professional to help navigate you through the business formation costs and filing process. Incfile has helped over 800,000 small business owners form an LLC for $0+ state formation fees.
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.