The Cheapest States to Form an LLC (and Why "Cheapest" Isn't Always Best)

The best state to register an LLC depends on your company’s current location, long-term goals, investor plans, and operations. LLC filing fees typically cost between $35 and $500 upfront, but these immediate costs are only one part of the fees and expenses involved in setting up a new LLC. Once you have finished forming your business, most states will generally expect you to file an annual report and pay annual fees. Ongoing annual fees can cost significantly more than filing fees, so the cheapest LLC formation state on paper isn’t always the cheapest one in practice.

Forming in a different state doesn’t necessarily reduce your costs. In many cases, this simply means you have to register and pay fees in the state where the business operates, as well as in the formation state. Below, we compare the cheapest states by filing fee and by ongoing costs, explain the out-of-state trap, and show how to confirm your filing went through, so you can choose the right state for your business.

Cheapest States by Initial Filing Fee

In the United States, the average LLC filing fee is around $132. The cheapest state, Montana, costs as low as $35. However, several other states fall near this range.

Cheapest States by Ongoing Annual Costs

Your initial fees are only one part of the picture. A state like Montana might offer the cheapest LLC formation price, but your LLC costs extend beyond the first year of running your business. A low filing fee upfront might be outweighed by costly annual report fees over time. In some cases, you may be financially better off opting for a state that has no annual report requirements over one that has minimal filing fees. 

New Mexico, in particular, stands out for its low ongoing costs. In addition to its low filing fee, it does not require LLCs to file annual reports. Other than New Mexico, Missouri, Arizona, Ohio, and South Carolina also have no annual report requirements or recurring report fees.

The Most Expensive States, for Contrast

While the best state to register an LLC isn’t based solely on the filing costs and annual fees, these are major factors to consider when forming a new business. Massachusetts has some of the highest LLC formation and annual report fees in the country, with a $500 filing fee and a $500 annual fee.

In California, LLCs pay an annual tax of $800. LLCs also pay an additional LLC fee if they earn $250,000 or more, starting at $900 and increasing with income. For LLCs earning $5,000,000 or more, the fee tops out at $11,790.

As these figures show, the best state to register an LLC shouldn’t be based merely on which state has the cheapest filing fee. Many other taxes, permitting costs, and annual fees can make a “cheap” filing state expensive to operate in.

Why Wyoming and Delaware Keep Coming Up in "Cheap State" Searches

Although many online comparisons bring up Delaware and Wyoming as the cheapest states to form an LLC, they aren’t technically the cheapest options. Instead, their ongoing appeal to business owners and investors is due to several key advantages. 

Wyoming has a filing fee of $110, making it relatively inexpensive. It has no state income tax. Because Wyoming limits a creditor’s remedy to something known as a charging order, the state offers strong asset protection.

By comparison, Delaware charges a $100 LLC formation fee. Businesses can benefit from the state’s Court of Chancery and highly established business law. While the state is favored by start-ups raising venture capital, this business-friendly appeal is mainly for corporations. 

Although Wyoming and Delaware offer many advantages, they aren’t the best choice for every situation. If you’re looking for established business laws, strong asset protection, an investor-friendly environment, or no state income tax, these states may make sense.

The Out-of-State Trap: Why Forming in a Cheap State Can Cost More

In many cases, the best state to register an LLC is the state where you are located because of something known as foreign qualification. If your business actually operates in a different state than where the LLC is formed, you’ll generally have to register as a foreign LLC in your home state anyway.

When you register as a foreign LLC, you have to pay a second round of filing and registered agent fees. Because of this, it is generally better and cheaper for small businesses that operate in one state to form an LLC in that state. Even if another state’s fees look better on a chart, paying a second set of fees usually outweighs any savings.

How To Choose the Right State for Your Situation

Choosing the best LLC formation state starts with where your business will operate and what it needs. The best state to register in is often where the business is located because this allows businesses to avoid foreign qualification costs. 

You’ll also want to carefully consider the following factors before you register your business.

• Investor Goals: Certain states, like Delaware, make it easier to bring in investors and attract venture capital. However, LLCs can’t issue stock, so these advantages mostly apply to C corporations.
• Long-Term Operational Plans: If you plan on operating in a specific state over the long run, that is normally the state where you should form your LLC. 
• Formation Costs: The upfront and ongoing filing costs, registration fees, licensing expenses, and taxes will impact whether a state is the right choice for your business.
• Privacy Concerns: Disclosure rules vary by state. Some states, like New Mexico and Wyoming, don’t require an LLC’s members or managers to be listed in public filings.
• Online Businesses and Digital Nomads: If you are a location-independent business, your filing location may be less straightforward. You’ll need to consider where your employees are located, your state of residence or domicile, and where business is typically conducted to determine if you have registration or tax obligations in any specific state.
• Real Estate LLC Considerations: If the business was formed primarily to own or manage real estate, it may be required to register or pay taxes in the state where the property is located.

How To Confirm Your LLC Filing Was Actually Processed

Once you’ve registered your LLC, the next step is verifying that the state processed the filing and the LLC is in good standing. EntityCheck’s Secretary of State (SOS) Business Search tool allows you to pull up your LLC’s state filing information and reported status in seconds. This type of tool is especially useful if you are filing in a different state for the first time and are unfamiliar with its filing system. After you have filed for an EIN with the Internal Revenue Service (IRS), you can use EntityCheck’s EIN Lookup tool to confirm that the tax ID has been set up.

Frequently Asked Questions

What is the cheapest state to form an LLC?

Montana is the cheapest state to form an LLC, followed by Kentucky, Arkansas, Arizona, Colorado, and Hawaii. However, the best state to register an LLC often isn’t the one with the cheapest upfront filing fees. Annual filing requirements, permits, taxes, and other costs can make the “cheapest” state more expensive in the long run. For many small businesses, the least expensive and most convenient option is to file in the state where the business operates.

Is it legal to form an LLC in a state where I don't live?

Yes, it is. However, every LLC needs a registered agent with a physical address in its formation state, so you’ll usually need to pay for a registered agent service there. While you can form an LLC in a state where you do not live, the state where you perform your general business operations will likely require you to foreign qualify if your LLC is formed elsewhere.

Do I still need to register in my home state if I form my LLC elsewhere?

Yes, you generally will if your LLC does business in your home state. If you are doing business in your home state, you’ll need to complete a process known as foreign qualification. Trying to operate without completing foreign qualification can result in back fees, penalties, and an inability to pursue a lawsuit until you have registered the business.

When you form in a different state, you will generally be required to register in your home state as well. Because this means paying extra fees, many small businesses choose to register in the state where they do business.

Why do so many companies form in Delaware or Wyoming?

Delaware is known for its business-friendly environment, Court of Chancery, established business law, and popularity with investors. Meanwhile, Wyoming is popular because of its privacy protections, low fees, strong asset protection, and lack of state income tax.

Are there hidden costs beyond the filing fee?

They may not be hidden, but there are costs beyond the filing fee. For example, within 120 days of formation, New York requires LLCs to publish a notice once a week for six successive weeks in two newspapers (one daily and one weekly) designated by the county clerk. Afterward, LLCs must pay $50 and file a Certificate of Publication. LLCs often have to pay for local licenses, permits, and doing business as (DBA) registrations. Depending on the state, the business may also need to pay for registered agent services.

How can I check if my LLC filing actually went through?

If you are uncertain whether your LLC is properly registered or want to make sure it is in good standing, you can use EntityCheck’s SOS Business Search to look up your business. Alternatively, you can check with your state’s Secretary of State to see if they have a business search or filing tracker tool available