How to Form an LLC for Cheap

A limited liability company (LLC) is one of the most popular business structures—and for good reasons. With an LLC, your personal assets are protected from being targeted in litigation. o pay off business debts, you have to deal with less bureaucracy, and tax filing is easy.

But if you're like most entrepreneurs just starting out, you're not flush with capital, so you try to cut corners wherever you can. While it is possible to reduce the expense of forming an LLC, you don't want to cut the wrong corners and create complications down the road. For instance, you can't avoid paying state fees, and you won't be able to dodge or get discounts on any licensing fees.

Here's some guidance on where it makes sense to trim expenses—and where it doesn't.

File the articles of organization yourself

As part of the initial LLC process, all states require you to file formation documents. Depending on the state, articles of organization may record your business name, business address, the names of the business owners, date of formation, and your registered agent (more on this in a bit). You can access easy-to-understand forms through your secretary of state's office. Many states offer these forms electronically so you can complete them online.

However, an attorney might make sense if you're forming a multi-member LLC or if you have complex assets or financing. In complicated scenarios, consulting with an attorney can help make sure you've got all your bases covered.

Use an incorporation service to file your LLC paperwork

Many online companies can help you file for your LLC and are generally less expensive than an attorney. However, if a legal issue or complication crops up, they won't be able to provide you with legal advice.

File in a state where the fees are cheaper

This may initially seem like a good idea but usually ends up being a hassle. While another state may offer lower filing fees, you will still need to pay taxes in the state where you operate and you could also end up having to deal with:

• Obtaining foreign qualifications in your home state. This means additional fees and paperwork, which may outweigh the benefits of a cheaper initial filing fee.
• Assessing a state's various tax requirements and comparing them to the taxes collected by your home state, which can be complicated.
• Hiring a commercial registered agent located in that state. The going rate for such services could be as much as $300 per year.

Designate yourself as the registered agent

In most states, every LLC must identify a person to be the registered agent. The registered agent must have an office located in the state where the LLC is filed and agrees to accept any lawsuits or subpoenas (commonly referred to as service of process) on behalf of the LLC

The question is, do you want to take on that responsibility? Along with your duties as the business owner, being your own registered agent means you'll be on the hook to be available at your designated address during business hours for service of process. (Speaking of which—do you really want to be the person who's served publicly with subpoenas?)

Also how organized are you? As the registered agent, you'll have to stay on top of time-sensitive paperwork attached to this position. This is why many LLCs hire a third-party registered agent.

File for your own EIN number

Once your LLC is approved, you may be required to have an Employer Identification Number (EIN). This exclusive nine-digit number is assigned to your business by the Internal Revenue Service and identifies your business for tax purposes. You'll need one to pay employees, manage your business taxes, and open a business bank account.

Reject corporate kit services

The plain truth is you don't need a corporate kit. Everything you would put in a fancy binder with an embossed cover can be put in a file folder in a drawer. There are reasons why a professionally done corporate kit is worth the expense. It offers a level of legitimacy when you are looking to raise money, it helps organize and keep track of your official documents, not to mention help you feel your business is official. But if you're looking for a place to shave costs early on, this item is by no means a necessity.

When it comes to cutting costs, remember this: Your bottom line is important, but so is your sanity. You don't want to put yourself in a position where you're taking on too much. You have to find the right balance between lowering your expenses and having the support you need.