Cheapest States to Form an LLC in 2026
Compare LLC formation costs across all 50 states. We break down filing fees, annual costs, and total 5-year expenses to find the cheapest states for your LLC.
LLC formation costs vary wildly by state. Kentucky charges $40 to form an LLC. Massachusetts charges $500. Over five years, the difference in total LLC costs between the cheapest and most expensive states can exceed $5,000.
But here’s the thing most “cheapest state” articles won’t tell you: the cheapest state to form your LLC is almost always the state where you live and do business. Forming in a “cheap” state while operating in an expensive one usually costs you more, not less.
Let’s break down the actual numbers.
The Real Cost of an LLC: More Than the Filing Fee
The formation fee is just the beginning. To compare states accurately, you need to factor in:
- Formation fee — One-time cost to file Articles of Organization
- Annual report fee — Most states require an annual or biennial filing
- Franchise tax or annual tax — Some states charge a flat tax just for existing
- Registered agent fee — If you’re not acting as your own agent ($100-$300/year)
- Foreign qualification fee — If you form out of state but do business in your home state
The 10 Cheapest States for LLC Formation
Based on total costs over the first five years (formation fee + annual reports/taxes):
1. New Mexico — $50 Formation, $0/Year
- Formation fee: $50
- Annual report: None required
- Franchise/annual tax: None
- 5-year total: $50
New Mexico is the cheapest state for an LLC, hands down. No annual report, no franchise tax, no ongoing state fees. The only recurring cost is your registered agent.
2. Kentucky — $40 Formation, $15/Year
- Formation fee: $40
- Annual report: $15 (due annually)
- Franchise/annual tax: None
- 5-year total: $100
Kentucky has the lowest formation fee in the country, and annual reports are just $15.
3. Mississippi — $50 Formation, $0/Year
- Formation fee: $50
- Annual report: None required (but must file for free every year)
- Franchise/annual tax: None
- 5-year total: $50
Like New Mexico, Mississippi keeps it simple with no annual fees.
4. Arizona — $50 Formation, $0/Year
- Formation fee: $50
- Annual report: None required (but must publish formation notice — $100-$300 depending on county)
- Franchise/annual tax: None
- 5-year total: $50 (plus publication requirement)
Arizona’s filing fee is low, but the publication requirement adds a one-time cost. Some counties have newspapers that charge as little as $50 for the required publication.
5. Wyoming — $100 Formation, $60/Year
- Formation fee: $100 (online)
- Annual report: $60 minimum (or $60 per $250,000 in Wyoming assets)
- Franchise/annual tax: None
- 5-year total: $340
Wyoming is popular for its privacy laws (no state income tax, no requirement to disclose member names). The costs are reasonable, especially for holding companies.
6. Montana — $70 Formation, $20/Year
- Formation fee: $70
- Annual report: $20
- Franchise/annual tax: None
- 5-year total: $150
Low formation fee, low annual reports, no income tax on pass-through entities.
7. Iowa — $50 Formation, $30/Biennial
- Formation fee: $50
- Annual report: $30 (biennial — every two years)
- Franchise/annual tax: None
- 5-year total: $110
Iowa keeps costs low with an infrequent reporting schedule.
8. Michigan — $50 Formation, $25/Year
- Formation fee: $50
- Annual report: $25
- Franchise/annual tax: None
- 5-year total: $150
Straightforward pricing with no hidden taxes.
9. Colorado — $50 Formation, $10/Year
- Formation fee: $50
- Annual report: $10 (due annually — one of the lowest in the country)
- Franchise/annual tax: None
- 5-year total: $90
Colorado has one of the best online filing systems in the country, and their $10 annual report is hard to beat.
10. Arkansas — $45 Formation, $150/Year
- Formation fee: $45
- Annual report: $150
- Franchise/annual tax: $150 minimum franchise tax
- 5-year total: $645
Low formation fee but higher annual costs due to the franchise tax.
The Most Expensive States for LLCs
For comparison, here’s what the priciest states look like over five years:
| State | Formation Fee | Annual Costs | 5-Year Total |
|---|---|---|---|
| California | $70 | $800+ (franchise tax) | $4,070+ |
| Massachusetts | $500 | $500 (annual report) | $2,500 |
| Tennessee | $300-$3,000 | $300 minimum | $1,800+ |
| Illinois | $150 | $75 (annual report) | $450 |
| New York | $200 | $9+ (biennial) + publication ($300-$1,500) | $518-$1,718 |
California is by far the most expensive. That $800 annual franchise tax applies even if your LLC earns zero revenue. It’s due every year you exist as a California LLC.
The “Form in Wyoming/Delaware” Trap
You’ve probably seen advice to form your LLC in Wyoming or Delaware regardless of where you live. The theory: these states have favorable LLC laws, low taxes, and strong privacy protections.
Here’s why this advice is usually wrong for small businesses:
You’ll pay double. If you live in California and form in Wyoming, you still need to register as a foreign LLC in California. That means:
- Wyoming formation fee: $100
- Wyoming annual report: $60/year
- Wyoming registered agent: $125/year
- California foreign qualification: $70
- California annual franchise tax: $800/year
- California registered agent: $125/year
Total year one: $1,280. Annual ongoing: $1,110.
Compare that to just forming in California:
- California formation fee: $70
- California annual franchise tax: $800/year
- California registered agent: $125/year
Total year one: $995. Annual ongoing: $925.
You save $285 in year one and $185 every year after by forming where you actually do business. Plus, you avoid the complexity of managing compliance in two states.
When out-of-state formation does make sense:
- You run an online business with no physical presence in any state
- You’re creating a holding company to own property or other LLCs
- You specifically need privacy protections that your home state doesn’t offer
- You’re a large business that can benefit from Delaware’s well-established corporate law
For the typical freelancer, consultant, or small business owner, form in your home state. Period.
How LLC Formation Services Affect Cost
Using an LLC formation service adds $0-$299 to your formation costs. Several services offer free formation (you pay only the state fee):
- ZenBusiness — Free Starter plan
- Bizee — Free basic formation
- Northwest Registered Agent — $39 + state fees (with free first year of registered agent)
When comparing total costs, remember that registered agent service ($100-$300/year) is an ongoing expense regardless of which state you choose. See our best LLC formation services comparison for full pricing details.
How to Choose Your State
For 90% of LLC owners, the decision is simple:
- Form in the state where you live and conduct business
- Budget for ongoing costs (annual reports, franchise taxes, registered agent)
- Use a formation service if the convenience is worth $0-$39 to you
If you’re in a high-cost state like California or Massachusetts, the solution isn’t to form elsewhere — it’s to factor those costs into your business plan. The liability protection and tax flexibility an LLC provides are worth the investment regardless of state fees.
For help getting started, our step-by-step LLC formation guide walks you through the entire process.
Written by the TopLLCServices Team
Business formation & compliance specialists · Published February 25, 2026