The cost of setting up a start-up business
By Richard Harroch
Incorporating a start-up business offers a number of advantages to entrepreneurs, primarily the protection of their personal assets against the debts and obligations 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 setting up a start-up business, including the costs that may be involved in related activities.
1. Fee for filing with the Secretary of State
Corporations are incorporated under state law, and an “Articles of Incorporation” or “Certificate of Incorporation” must be filed with the Secretary of State to formally organize the corporation. Application 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 deposit to be expedited, there is an additional charge.
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, My society, and CorpNet. They offer different packages for their services, ranging from $ 200 to $ 1,000, excluding administration fees charged by the state. The fees generally cover the preparation of board resolutions, charter documents and articles of association.
3. Lawyer’s fees
For more complicated incorporations with multiple founders, investors, or specific intellectual property or contract issues, it will be a good idea to hire an experienced start-up lawyer. They typically charge by the hour, typically between $ 250 and $ 600 an hour. Some law firms will offer a “fixed fee” package for basic services, such as charter preparation and other business incorporation documents. Experienced start-up lawyers will help you avoid mistakes often made by startups.
4. Registered agent fees
When your company is incorporated, it must have a “registered agent, âAlso known as aâ process service agent â. The registered agent is a person or business entity licensed to do business in your state of incorporation who receives official legal and tax correspondence on behalf of the company. The registered agent can be a company officer, shareholder, director, other state resident, or a dedicated registered agent services company.
Many online incorporation services (ZenBusiness, CorpNet, MyCorporation, etc.) will provide registered agent services for an annual fee of $ 100 to $ 300, related to their incorporation services. Using an outside registered agent can protect your privacy because the registered agent’s address is listed in public records, not your physical address.
5. Tax identification fees (none)
In most cases, you will need to obtain an IRS tax identification number for your business. This is also known as an “Employer Identification Number” (EIN), and it is similar to a Social Security number, but for businesses. Banks will ask for your EIN when you open a business bank account, and you will need it when filing tax returns. You can get a EIN online via the IRS website. There is no charge 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 application fees
If you plan to operate your business under a name other than the official name filed with the Secretary of State, you must file a “DBA” or “Doing Business As” certificate. The fees are generally low, around $ 25 to $ 50. It’s a one-time 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 increase the costs of establishing a start-up business:
- License required for regulated businesses (aviation, agriculture, marijuana dispensaries, bars, etc.)
- Sales tax license or permit
- Home business license
- City and county business permits or licenses
- Zoning permit
- Vendor permit
- Health service permit (as for a restaurant)
- Federal and state tax / employer identifiers
Also consult the CalGold website, which helps California businesses find the appropriate licensing information and contact details for the various California agencies that administer and issue these licenses. Depending on your business, permits or licenses may also be required at the federal level. Check SBA site here for advice on federal permits and licenses. The fees for any of these will vary depending on 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 company filing containing basic company information (address, names of officers, registered agent, etc.). In California, this is called a “Statement of Information” and the filing fee for corporations is $ 25.
10. Share exemption deposit
When you issue shares in your company, you are subject to the registration requirements of federal and state securities laws. But many startups can be granted an exemption from these registration requirements, but the state may require you to file for an exemption and pay a fee, typically between $ 25 and $ 50.
Other costs of incorporating a startup
While this is strictly not an incorporation fee, startups should factor in and budget for other common operating costs, such as taxes, insurance, accounting, bookkeeping, software. , contractors, employees and other service providers.
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Copyright Â© by Richard D. Harroch. All rights reserved.
About the Author
Richard D. Harroch is Managing Director and Global Head of Mergers and Acquisitions at VantagePoint Capital Partners, a San Francisco-area venture capital fund. See all his articles and full biography on AllBusiness.com.
This article was originally published on AllBusiness.com.