Notice: All new and existing entities will need to file a Beneficial Ownership Information Report with FinCEN. Click here to learn more.

How Much Does It Cost To Incorporate a Small Business?

By IncNow | Published August 5, 2020

piggy bankWe often hear these questions from small business owners: What is the cheapest option for incorporating my company? How much does it cost to incorporate? Should I form an LLC? What incorporation fees can I expect?

Across all fifty states, Delaware is near the median for incorporation costs. Among the top-tier states such as Florida and Nevada, Delaware remains one of the most affordable for incorporation cost, annual fees and other maintenance costs. Despite these facts, shopping for your state of incorporation strictly by start up fees is a mistake. It can end up costing you more down the road in litigation bills and hidden maintenance costs. Also, if you do not consider which type of entity will be the best fit for your business, you may burden yourself with statutory requirements and corporate formalities that you can avoid with other types of entities.

The best type of company for a small business is generally an LLC. Members own an LLC and either third-party managers or the members themselves manage it. It is a very flexible form of business, which accounts for why almost 75% of new businesses are LLCs today. The LLC Operating Agreement is the governing document to allow you to arrange the LLC’s affairs as the members choose.

Why Should You Consider an LLC for Your Small Business?

By forming an LLC, you safeguard your personal assets by building a shield between them and your business liabilities. This means that if the business itself cannot pay a creditor, this shield makes it difficult for creditors to penetrate into your personal assets, such as your house or car. If the single-owner business does not form an LLC and chooses to operate as a sole proprietorship, the sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company. With an LLC, you will be able to make certain tax elections which may save you thousands of dollars per year.

The State of Incorporation Matters

Aside from choosing the type entity, you also need to choose the state of incorporation. The law where your business is located may not be favorable to your company. Businesses in states such as California, Pennsylvania and New York, should look to the “gold standard” state for incorporation, which is Delaware. Choosing to incorporate in Delaware may help resolve problems with ownership disputes and other issues down the road. Delaware is known for having the best corporate laws and courts to resolve corporate disputes. See our LLC page for more information on why the Delaware LLC provides the most predictability and protection.

Operating a Delaware LLC for a small consulting firm in another state provides for more protection for you. If the LLC does not have an office or employees in your home state, then it may not need to file a Certificate of Authority to register your company in the state where you operate your business.

Incorporation Fees

The cost to form and maintain a Delaware LLC is low. You can form an LLC in Delaware without visiting, opening an office, or maintaining a bank account in Delaware. The Delaware LLC Act requires any company incorporated in Delaware to have a Delaware Registered Agent. The Delaware Registered Agent must have an in-state address. The annual cost to maintain a Delaware LLC includes a State of Delaware flat tax of $300 and a registered agent fee. It is important to choose a reliable and reputable agent like IncNow that keeps its start up and agent cost low. Our registered agent fee is $99 a year. So for an annual maintenance fee of about $400, you protect your personal assets and limit your liability and access the legal and tax benefits afforded by the state of Delaware.

As a consultant, you will still be responsible for your personal negligence. Therefore you should obtain insurance to cover those risks. You will have to weigh LLC costs and benefits to determine what is best for you.

When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go