What is the Cheapest State to Form an LLC?What you Need to Know Before Forming your LLC

Denise Elizabeth P
Senior Financial Editor & Contributor
Last Updated: March 9, 2022
Date Published: March 9, 2022

If we are just looking at the cost to form an LLC, Kentucky is going to be the cheapest state to form an LLC at $40 per LLC formation. 

However, when forming an LLC, there are more costs than just the formation costs. 

When looking to form an LLC, the costs you want to consider are going to be: 

  • Formation costs which range from $40 – $500 depending on the state
  • Maintenance Costs
  • Annual Taxes

LLC formation

Formation Costs

Kentucky has the lowest LLC formation cost at $40 per LLC while Massachusetts is the most expensive at $500 per LLC. 

The formation cost is a one time fee and so it won’t have much impact on future costs associated with your LLC. 

Forming an LLC can be done without the help of an attorney so the registration fee is going to be the main cost of actually creating your LLC. 

Maintenance Costs

Although the formation or registration fee is a one time fee, maintenance costs are usually incurred annually or biannually depending on the state in which you form your LLC. 

Most states have these report fees and the cost and frequency will vary from state to state. 

Some states have no report fees, some states have $100 report fees, and other states like California can have higher report fees of up to $800 or more. 

Before forming your LLC, you will want to see what the annual reporting requirements are in the state in which you are thinking about registering your LLC.

While you may only be paying $40 to form your LLC, you could be paying hundreds in maintenance costs as well as annual taxes.

Annual Taxes

This is where people may get confused and think that they are making a better financial decision by forming their LLC in a “cheaper” state. 

While Kentucky has the lowest formation cost, it doesn’t mean that overall, it will be the cheapest option for your LLC. 

In fact, the cheapest state to from your limited liability company is actually in the state in which you are going to be doing business. 

For example, if you register your LLC in Kentucky because the formation costs are lower but you live in Oregon and the LLC does business in Oregon, you will still have to pay Oregon income tax.

Furthermore, you will have to register your business as a “foreign” LLC in Oregon and pay the fees related to that on top of the fees you already pay in Kentucky. 

You will always be required to register the business in the state in which business is conducted, no matter where your business is formed. 

Oregon won’t care that your business is registered in Kentucky, you will still have to pay Oregon income tax as well as any fees related to the “foreign LLC.”

As you can see, trying to take advantage of lower fees and costs in one state may actually make your LLC maintenance and annual tax costs higher. 

Conclusion

More often than not, the best state to form your LLC is in the state where you will be doing business. 

If your business is subject to state income taxes, forming the LLC in a state with no income tax has its advantages but you will want to either have that be your home state or see what the implications are of conducting business outside of those states. 

If you register in one state but live and run your business in another state, you may still have to register your LLC in another state as a foreign LLC and pay fees associated with that – which ultimately doesn’t save you any money.

If you are starting an LLC as a non-US resident, Wyoming, Nevada, Delaware, and New Mexico are great options because they offer LLC anonymity and cost advantages. 

You can learn more about LLC Fees by State in our post here

In conclusion, the best state for your LLC is going to the state where your business is located. 

While some fees have lower formation fees, maintenance fees, and taxes, you will have to ultimately register your lLC in the state where you do business – and pay taxes there.