Starting a business is an exciting journey, but it's essential to understand the costs involved to avoid surprises down the road. While many new entrepreneurs focus solely on formation costs, maintaining an LLC or Corporation involves ongoing expenses.
This guide breaks down the costs associated with setting up and maintaining these business structures in the USA, using data for Wyoming (WY) as an example and providing a general overview for other states.
1. Understanding the Basics: LLC vs. Corporation
Before diving into the costs, let's clarify the difference between an LLC (Limited Liability Company) and a Corporation:
- LLC: Offers flexibility in management and tax treatment, with the ability to choose how profits are distributed. It provides limited liability protection, meaning owners' personal assets are generally protected from business debts.
- Corporation: A more formal structure that can issue shares and is often used by businesses planning to seek outside investors. Corporations have strict governance requirements and are subject to double taxation—profits are taxed at the corporate level, and dividends are taxed on shareholders' personal returns.
Both structures offer liability protection, but the choice depends on factors like fundraising needs, tax considerations, and management preferences.
2. Initial Setup Costs
The initial costs of forming an LLC or Corporation can vary widely depending on the state. Here's a breakdown using Wyoming as an example:
- Business Formation: $152 (one-time fee)
- Business Address: $15/month ($180/year)
- Business Phone Line: $10/month ($120/year)
- Business Fax: $10/month ($120/year)
- Business 800 Number: $10/month ($120/year)
- Domain Registration: $21/year
- Email Setup: Included with domain or separate, depending on the provider
- Website Design: $600 (one-time fee)
- Software: $50/month ($600/year)
- DUNS Registration: $150 (one-time fee)
- Yellow Pages Listing: $80 (one-time fee)
- 411 Listing: $80 (one-time fee)
- EIN (Employer Identification Number) Filing: $100 (one-time fee, can be obtained for free directly from the IRS)
- Registered Agent: $130/year (if using a service)
- IRS Form 8832 Filing: $50 (one-time)
- Operating Agreement: $50 each (one-time)
Total Initial Cost: $2,553.00
3. Ongoing Maintenance Costs
Maintaining an LLC or Corporation involves several recurring costs. For LLCs, a significant consideration is the Self-Employment Tax, which can be around 15.3% of net earnings. This is because LLC members are considered self-employed and must pay Social Security and Medicare taxes.
Here’s an overview of typical annual expenses:
- Business Address Services: $180/year
- Business Phone Line and Fax: $240/year
- 800 Number: $120/year
- Domain name: $21 (domain)
- Email Services: 8$/month ($96/year)
- Annual Franchise Filing: $100 (specific to the state)
- Sale Tax Report (if applicable): $1,200/year (varies widely)
- Accounting Services (Basic): $400/month ($4,800/year)
- Registered Agent: $130/year (if using a service)
- BOI filling: $150 every update
- Business Tax Return: $600/year
Total Recurring : $7,076.00/year
Excluding initial services
Total Cost 1st Year:$9,629.00
4. State-Specific Costs Overview
Each state has unique fees and requirements for forming and maintaining an LLC or Corporation. For instance:
- Delaware: Known for its business-friendly laws, it charges an annual franchise tax based on the number of authorized shares.
- California: Requires an $800 annual LLC tax and additional fees based on income.
- Texas: Charges a franchise tax, if total sales exceed $2.47 million
Entrepreneurs should consult the respective state's Secretary of State website or a legal professional for detailed information.
5. Special Considerations for Solo Entrepreneurs
For solo entrepreneurs, particularly those with a team overseas, the costs can differ. For example, international contractors may not require payroll services or 1099 filling, but managing payments and tax reporting (such as issuing 1099 forms for U.S.-based contractors) can incur additional costs.