Incorporating a startup business provides a number of benefits to entrepreneurs—primarily protection of their personal assets from the debts and liabilities of the business. But there are a variety of steps that must be taken to incorporate, most with associated fees or costs.
This article provides an overview of the costs of incorporating a startup business, including any fees that may be involved in related activities.
1. Incorporation filing fee with Secretary of State
Corporations are formed under state law, and an “Articles of Incorporation” or “Certificate of Incorporation” must be filed with the Secretary of State to officially organize the corporation. Filing fees vary by state. For California, the filing fee paid to the Secretary of State is $100. For Delaware, the fee is $89. If you want the filing to be expedited, additional fees are charged.
2. Incorporation service fees
There are a number of incorporation services that will take care of the paperwork and filing to form your corporation, such as ZenBusiness, LegalZoom, MyCorporation, and CorpNet. They offer different packages for their services, ranging from $200 to $1,000, excluding the filing fees charged by the state. The fees typically cover preparation of resolutions of the board of directors, the charter documents, and the bylaws.
3. Attorney’s fees
For more complicated incorporations with multiple founders, investors, or special intellectual property or contract issues, it will make sense to hire an experienced startup lawyer. They will typically charge by the hour, typically anywhere from $250 to $600 an hour. Some law firms will offer a package “fixed fee” for basic services, such as preparing the charter and other corporate formation documents. Experienced startup lawyers will help you avoid the mistakes often made by startups.
4. Registered agent fees
When your corporation is formed, it must have a “registered agent,” also known as an “agent for service of process.” The registered agent is a person or business entity authorized to do business in your state of incorporation who receives official legal and tax correspondence on behalf of the corporation. The registered agent can be an officer of the company, a shareholder, a director, another person who resides in state, or a dedicated registered agent service company.
Many of the online incorporation services (ZenBusiness, CorpNet, MyCorporation, etc.) will provide registered agent services for an annual fee of $100 to $300, connected with their incorporation services. Using an outside registered agent can protect your privacy as the registered agent’s address is listed in public records, and not your physical address.
5. Tax ID fee (none)
In most instances, you will need to get a tax ID from the IRS for your company. This is also known as an “Employer Identification Number” (EIN), and it’s similar to a Social Security number, but for businesses. Banks will ask for your EIN when you open a company bank account and you need it when filing tax returns. You can get an EIN online through the IRS website. There is no fee for obtaining the EIN from the IRS.
6. Minimum Franchise Tax
A number of states will impose a minimum annual franchise tax on corporations (although some will waive it for the first year of the corporation). In California the minimum annual franchise tax is $800.
7. DBA filing fee
If you are going to operate your company under a name different than the official name filed with the Secretary of State, you need to file a “DBA” or “doing business as” certificate. The fee is typically small, around $25 to $50. It’s a onetime fee.
8. Permit, license or registration fees
Depending on the nature of your business, you may need the following permits, licenses, or regulations, which will add to the costs of incorporating a startup business:
- Permits need for regulated businesses (aviation, agriculture, marijuana dispensaries, bars, etc.)
- Sales tax license or permit
- Home-based business permits
- City and county business permits or licenses
- Zoning permit
- Seller’s permit
- Health department permits (such as for a restaurant)
- Federal and state tax/employer IDs
Also, check out the CalGold website, which assists California businesses in finding appropriate permit information and contact information for the various California agencies that administer and issue these permits. Depending on your business, there may be permits or licenses necessary on the federal level as well. Check out the SBA site here for guidance on federal permits and licenses. The fees for any of these will vary by the nature of the permit or license and the state involved.
9. Annual filing with the Secretary of State
Some states, such as California, require an initial and then annual filing from the corporation containing basic information about the company (address, name of officers, registered agent, etc.). In California, this is called a “Statement of Information” and the filing fee for corporations is $25.
10. Stock sales exemption filing
When you issue stock in your corporation, you are subject to the registration requirements of federal and state securities laws. But many startups can qualify for an exemption from those registration requirements, but the state may require you to file an exemption request and pay a fee, typically between $25 to $50.
Other costs of incorporating a startup
While strictly not incorporation costs, startups need to factor in and budget for other ongoing operating costs, such as for taxes, insurance, accounting, bookkeeping, software, contractors, employees, and other service providers.