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Updated by Albert Fang
There are four legal structures for business: sole proprietorship, partnership, limited liability company (LLC), and corporation. Many people prefer an LLC because of the limited liability.
Limited liability means the business is considered a separate entity from its owners, so only the business can be liable for its actions, not its owners. The costs associated with starting an LLC include registration fees, administrative fees, and legal fees.
Most entrepreneurs spend too much to form their companies. The following tips will help you save money when forming your LLC:
State of Registration
One of the most significant issues when forming an LLC is where you register it. States have different charges for registering LLCs, affecting startup costs. For example, in California, it may cost you $100 to register your LLC, and you have to pay $800 in annual tax or 1.5% of your business earnings, whichever is higher.
On the other hand, in Colorado, you need $50 for registration fees and $10 for filing periodic reports. Therefore, consider where you want to register your LLC. In this regard, you have less leeway with a brick-and-mortar business than with an online one.
Recommended: Start an LLC in Texas
Generate Your LLC Operating Agreement Online
The best way to save money when forming an LLC is to do the work yourself. One way to do that is to create your LLC operating agreement.
The operating agreement is a document that sets the rules of how the company will operate and is based on an agreement by all shareholders. Going to an attorney for the service will cost you a lot of money. You can generate an operating agreement online by yourself.
It will still be a legally binding document prepared by legal professionals. However, it will be much cheaper than a lawyer.
Be The Registered Agent
Choosing a business structure is one of the most important aspects of starting a business. If you choose an LLC, the state requires you to select a registered agent who handles official or legal documents for the company.
Hiring a registered agent can cost between $100 and $200 a year, which is why most people choose to hire one. However, if you want to spend less money when forming your LLC, you can be your LLC’s registered agent.
A downside to being a registered agent is the publicity you get for the role, as your personal information will be publicly available online.
Hire an LLC Formation Company
If you do not have the time but are willing to pay someone to start an LLC for you, consider hiring an LLC formation company. LLC formation services handle the entire company formation process for you and give you the finished product, under your instruction, of course.
The services of an LLC formation company will cost you between $40 and $300, depending on the company. However, hiring a law firm to do it will be much more expensive. LLC formation services will provide you with a registered agent for the first year, reducing your cost.
Prepare The Articles of Organization Yourself
When forming an LLC, most entrepreneurs will farm out the task of preparing the articles of organization to a law firm that will charge you hundreds of dollars. Though a law firm will probably do a better job than you, you should consider preparing the articles of organization yourself.
You need basic information about your business to prepare the articles. In some states, you may have to publish the articles of organization in a newspaper before filing it with the state. Visit the website for the state agency responsible for state registration and find out precisely what you need to do this job yourself.
There are several ways you can save money when forming an LLC. The tips above are a fraction of what you can do, but they will help you save money when creating your company. If anything perplexes you, feel free to contact an attorney.
Reviewed and edited by Albert Fang.
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Article Title: 5 Tips for Forming an LLC Without Spending a Lot of Money
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Fang, A. (n.d.). FangWallet — Personal Finance Blog on Passive Income Ideas. FangWallet. https://fangwallet.com/
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