The cost of registering your company depends on two primary factors: What type of organization you wish to register and which state you intend to register it in. The different types of organizations offer different tax advantages. Different states can give you more or less protection. In addition, the cost of registering in states vary from less than $100 if you do it yourself to several thousand dollars if you use a corporate attorney.
In State or Out of State
In order to form a company, you'll need to register with a specific state. Many people register their company in the state in which they live, but you may register your company in any state. If you're looking to register out of state, you should contact a tax professional for potential tax issues and a corporate attorney to discuss any potential legal issues. For example, while an outside state might offer tax advantages over your home state, if you plan to do business in your home state you may still be liable for home-state taxes. Likewise, from a legal perspective, you may have to register an out-of-state company with your home state if you do business in your home state.
Professional Registration Agents
If you're forming a company out of state, you will likely need to contract with a service provider to act as an agent. In addition, you may require the assistance of legal counsel to register. This can significantly add to the cost it takes to register a company (and it might also add to the time it takes to register).
Types of Companies
There are three primary types of company forms, each of which offers the same level of personal liability protection. The primary difference between these types is their treatment of income and taxes.
A C-Corp is a corporation where the corporation, not the owners, pays all taxes and there is no requirement to distribute income.
An S-Corp is a corporation which does not pay taxes on the profits, as that profit and the associated tax liability is passed through to the owners based on their percentage of ownership.
LLCs are Limited Liability Companies where, like the S-Corp, income and taxes pass through to the owners. However, unlike the S-Corp, the distribution of income (and associated taxes) does not necessarily have to be determined by percentage of ownership. Finally, there are various forms of partnerships, which may or may not require state registration. It's a good idea to consult a tax professional to review the tax ramifications of each option.
Choosing a State
Besides deciding whether your want to form a corporation or an LLC, you'll also need to decide which state to file in. Different states provide different levels of protection, with Delaware perhaps being the most popular because of its favorable laws, the fact you don't need to have a physical office in Delaware and the fact you only need one person to create a company. Each state will have different filing requirements and different fees. For example, Delaware charges $89 to register a corporation and $90 to register an LLC. Service agents may add a processing fee, but even with that, you can find agents on the internet where your total out of pocket expenses will be less than $200 (including state fees). Compare this to New York State, where, if you hire a corporate lawyer to set up your company, you can expect to pay between $2,000 and $3,000.
Misconceptions
Be careful before you make a decision to register your company in a state just because that particular state has low registration fees, especially if you plan to do business in a different state. You'll also need to consider the ongoing costs of maintaining the company in both the state it is registered in as well as the state it does business in.
