How To Start An LLC In 7 Steps

An LLC is a type of legal entity that U.S. business owners can select for the operation of their enterprise. Creating an LLC helps protect an individual’s or group’s personal assets in case of legal trouble or bankruptcy. It also allows for flexible taxation options, as not all businesses operate in the same way. Some may elect for taxation as a sole proprietorship, but others may be taxed as a corporation. Consult a tax advisor to determine the best option for your LLC.

Learn more in our full guide to LLCs.

Use this seven-step guide to start an LLC today. Note that there are differences in laws and processes from state to state. Browse our state LLC formation guides for information specific to your state.

1. Decide on a Business Name

Marketing may be at the top of your mind as you consider names for your business. And while it’s important to choose the right name for branding purposes, your business name must also meet state law requirements.

In general, state laws won’t allow you to choose a business name that’s already being used by another business in your state. Most states also prohibit certain words that might imply you’re in a certain business, such as insurance or banking. You’ll probably need to include some version of “LLC” or “limited liability company” at the end of your business name.

You can review your state’s LLC naming requirements and find out if the name you want is available by visiting the website of the state agency responsible for business filings (usually the Secretary of State) and doing a name search.

2. Designate a Registered Agent

Every state requires LLCs to have a registered agent. A registered agent is someone who receives official or legal documents (such as subpoenas) on behalf of the LLC. Once received, the registered agent then passes on these documents to the LLC.

Anyone who is at least 18 years old can be a registered agent—and you’re allowed to name yourself or an employee. However, the agent must be available at an address within your state during normal business hours. You can instead designate a company that provides registered agent services. This will come at a fee, of course; pricing for registered agents may cost more than a hundred dollars per year.

Should I Be My Own Registered Agent?

You can legally act as your registered agent in every state. However, the availability of this option doesn’t automatically make it suitable for everyone. If you decide to act as your LLC’s registered agent, you should know that your name and the address you use for your business will become a matter of public record.

You must receive and handle crucial legal documents or notices as your LLC’s registered agent. If you are not as knowledgeable about local laws and believe you would struggle to manage this type of paperwork, acting as your own agent may not be best, even if the goal is to save money.

Carefully consider your options and perhaps even consult with a lawyer or professional agency before becoming your LLC’s registered agent.

3. Get a Copy of Your State’s LLC Articles of Organization Form

To establish your LLC as a legal entity, you’ll file a document with the state agency that handles business filings in your state. In most states, this document is called the articles of organization, but some states use a different name, such as a certificate of formation. Each state has a form you can use. To find your state’s form, go to the same website you used for business name research.

4. Prepare the LLC Articles of Organization Form

Each state lists its specific requirements and procedures for those trying to form an LLC. Basic information you’ll need to provide includes:

• Your business name
• The address of your principal place of business
• The purpose of the business
• The way your LLC will be managed
• Contact information for the registered agent (and in some states, the agent’s signature)
• The duration of the LLC, if you plan to dissolve it at a set date

Once these steps are complete, one or more business owners or organizers will need to sign the form.

Some states, such as Nebraska and New York, require you to publish a notice in the newspaper after registering your LLC.

5. File the Articles of Organization

Check your articles of organization carefully before submitting them to your state. In many cased, you can have articles of organization created and filed for you automatically by answering a few questions on your state’s registration site.

You’ll also need to pay a filing fee, which varies depending on the state where you’re forming your business.

When your formation documents are approved, you’ll be issued a certificate by the state to indicate your LLC is formally registered. Use it for other necessary tasks such as setting up a business bank account and getting a tax ID number.

6. Create an Operating Agreement

An operating agreement contains the details of the financial, legal and management rights of all members of the LLC. More specifically, it can include how profits will be distributed, how members leave the LLC and who contributes capital for the business. In essence, it should contain all relevant information pertaining to the operations of your LLC.

Many states don’t require an operating agreement, but that doesn’t mean you don’t need to craft one. LLCs with more than one member will want to create one to ensure everyone agrees on their rights and responsibilities. Even solo business owners benefit from outlining the details in writing.

Crafting your own operating agreement is one option, especially for single-member LLCs. And there are plenty of free templates online to get you started. For more complex situations such as LLCs with multiple owners, hiring an experienced attorney may be well worth the expense.

7. Keep Your LLC Active

Setting up your LLC is only the start. Once it’s formed, you’ll need to ensure your business remains in good standing with your state. Again, refer to your state’s business filing website for current information on how to do so. You may need to file a report every one to three years that updates information pertaining to your LLC and pay an annual filing fee.

If filed online, it may be possible to get your LLC formed in a few business days, depending on your state’s processing time. Otherwise, LLC papers submitted by mail often take several weeks to process.

Alongside knowing how to start an LLC, there are a few key details to handle that contribute to the success of the new entity or which may serve as additional requirements for running your business.

Obtain Business Licenses and Permits

In addition to documents for establishing your LLC, you might need to complete forms and submit fees related to business licenses and permits. This information is likely available from the same office or on the official website as part of the list of business forms and fee schedules.

Confirm the types of licenses and fees your business needs to operate legally within your state. Be mindful of important deadlines, as you will likely have to apply to renew your license or permit periodically.

Get an Employer Identification Number (EIN)

Obtaining an EIN is crucial for anyone seeking to start an LLC. It acts as the tax ID number for your LLC for tax filing, bank accounts and other financial products. You should get your EIN as soon as you set up your new company.

Divide Business and Personal Assets

Having an EIN and getting a business bank account are two common ways to keep your business assets separate from your private assets for accounting, tax and liability purposes.

One related concern among LLC owners and members is how to pay themselves. You can pay yourself a paycheck as a W-2 employer or a 1099 contract worker, or through profit distributions called owner’s draws. Formalizing a payment process makes it easy to keep track of distributions. It allows you to treat yourself as an employee paid by the business, avoiding the issues raised by spending company money for private use.

Register Your Business in Other States

You may register your business in as many different states as you want. Additionally, the state where you choose to establish your domestic or in-state entity can be somewhere other than where you live. You can set up your foreign (out-of-state) entity if you have a registered agent within that state.

Creating a foreign LLC requires first establishing your business in a different state. If, for example, you originally incorporated your LLC in Delaware but wish to operate in Texas, you need to submit Form 304 or an Application for Registration of a Foreign Limited Liability Company to the Texas Secretary of State. Often, you must also provide a certificate of good standing and additional documentation to clear the way for registering your business in other states.

Check out our guides below for details on creating an LLC in specific states.

LLCs are popular for entrepreneurs and groups seeking to launch a promising new business venture. Some common reasons why people elect to form LLCs include:

• Low startup cost: Often, an LLC costs less to establish and run than a corporation. In some states, the fees are less than $100. LLCs are an ideal business structure for those wanting to start a company without needing to spend a lot of money.
• Tax-related benefits: LLCs are unique in that they can be treated as pass-through entities and claimed on personal taxes, even as business assets get separated from one’s finances. Many LLC owners prefer this option, as it helps avoid the double taxation that corporations are subject to. That said, LLCs may be treated as a sole proprietorship, partnership, C-corporation (C-corp) or S-corporation (S-corp) for tax purposes. Learn more about LLC tax benefits.
• Liability shielding: As the name implies, running an LLC provides members and owners with some liability protection. For instance, successfully designating the business’s assets protects members’ personal assets if the company gets sued.

Learning how to create an LLC isn’t too complex. There are even companies available to help you complete the paperwork and even handle yearly obligations on your behalf, such as annual reports.

When determining how to start an LLC, there are several types of LLCs to choose from; knowing the LLC structures available is essential for selecting a business model that most closely aligns with the nature of your company and how you intend for it to operate. These LLC structures include:

• Single-member LLC: This LLC is owned and operated by a single person. While similar to a sole proprietorship, this LLC provides additional tax benefits and liability shielding.
• Multi-member LLC: Standard LLCs with more than one member, often divided into manager-managed or member-managed entities.
• Series LLC: Series LLCs are tiered business structures where the topmost LLC owns a series of lower-tiered LLCs through limitless segregation. Each LLC in the series operates mostly independently of one another; their assets are also primarily separated.
• PLLC: A specialized LLC, this business formation type is only available to certain licensed professionals in limited states.

Uncommon: Anonymous LLC

There isn’t a legal designation for this type of entity. Instead, an LLC gets deemed “anonymous” when the state does not publicly identify its owner or their contact information. Much about business formation is a matter of public record, and there may be a reason someone would want to try to keep as much of their information private as possible. For instance, a single-member LLC owner may operate out of their home but may not want this fact to be a matter of public knowledge.

Most states currently do not allow LLCs to get created anonymously. The option is presently limited to Delaware, Nevada, New Mexico and Wyoming, though Nevada and Wyoming require owner names to be listed.

The cost to start an LLC depends on the state where it is created. You could pay as little as $40 or as much as $500 to file your LLC paperwork. That does not include other associated costs, such as paying to reserve a business name or expediting the process. You may also need to buy business licenses or permits for your LLC.

Moreover, when determining the cost of an LLC, it is vital to consider factors beyond the basic paperwork to form the business. That includes annual obligations such as registered agent fees and annual reports.

Many entrepreneurs and aspiring business owners choose to create an LLC because it is among the most cost-effective and streamlined ways to get your company off the ground. Yet, several other business types may be worth considering. Each option has its advantages and setbacks but may be worth considering.

Sole Proprietorship

A sole proprietorship is the most simple method of business operation. In this case, an individual engages in business without registering a business entity. You may act as a sole proprietor under your name or a pseudonym; if the latter, you would need to submit “doing business as” or DBA paperwork to the state, county and sometimes municipal government.

The owner of a sole proprietorship reports business income and earnings on their personal tax returns. Be prepared to pay Social Security and Medicare taxes, commonly referred to as self-employment tax, which is 15.3% of your net earnings up to $168,600 (2.9% of earnings above that amount). Unlike LLCs, sole proprietors take on all risks and have no liability protection. They also lack the flexibility to choose between operating as a pass-through business entity or as a corporation. A sole proprietorship may be a good starting point for an individual, but they might later consider creating a single-member LLC.

Partnership

A partnership is a business model established when two or more people join together to establish a for-profit company. Depending on your state, you may choose to establish one of three types of partnerships: a general partnership, limited partnership or a limited liability partnership.

In a general partnership, everyone has complete control and equally unlimited liability. This differs from a limited partnership, where one member assumes complete control of the day-to-day operations and others have limited control and liability. With an LLP, all partners have limited liability. As with a partnership, you and your partner or partners may be able to operate under a DBA as long as you complete the necessary paperwork, although some states may require you to register your partnership.

A partnership does not pay income tax, as it is a “pass-through” entity. That means at tax time, each partner reports their share of the profits and losses on their personal returns.

Corporation

One can form and operate C, S, B, and closed corporations within the United States (depending on the state’s options). While LLCs provide various forms of flexibility, corporation structures are more rigid by comparison.

C-Corps

A C-corporation, or C-corp, is the most general form of this business model. It is recognized as a separate tax-paying entity. Like an LLC, there is some limited liability protection.

Corporation owners are known as shareholders, and the level of ownership is reflected in the percentage of company shares each person owns.

S-Corps

S-corp and C-corp are different tax treatments that LLCs and corporations can elect. An S-corp is treated as a “pass-through” entity exempt from corporate income taxes. S-corp shareholders only pay individual income taxes on their salaries and their shares of company profits.

Benefit Corporations (B-corps)

In more recent years, a growing number of companies have chosen to operate as benefit corporations. Benefit corporation formation means these businesses can consider the needs of all stakeholders (employees, communities and the environment, in addition to shareholders) and won’t be penalized if decisions don’t maximize profits.

B-corps stand apart from other corporations regarding mission and purpose; the person or group behind these entities prioritizes running them as ethically and transparently as possible. In some states, B-corps must submit annual benefits State-governed benefit corporations (also called public benefit corporations) differ from the similar Certified B Corporation. Certified B Corps are companies that have been assessed and certified by the private company B Lab for their public impact.

Nonprofit Organization

A nonprofit organization is an LLC or corporation that exists for reasons wholly separate from income generation, and no part of the organization’s earnings may be distributed to members, officers or directors. Some common examples of nonprofits include churches, public schools, political organizations, volunteer services and labor unions.

One of the better-known benefits of operating a nonprofit is tax exemption status, but to maintain this, the organization must adhere to specific requirements, which vary depending on what kind of organization you run.

Cooperative

A cooperative, or co-op, is a type of business owned and controlled by employees, customers or community members. Cooperatives typically operate in the insurance, credit, healthcare, telephone, electric, housing, transportation, child care and utility industries. Farmers often use cooperatives to both market and process their crops and livestock.

Cooperatives are not tax-exempt entities; they are subject to the same taxes as any for-profit company.

We have various articles available for further reading if you are interested in additional information or resources concerning LLC definitions and the formation processes.

Helpful LLC Formation Services

• Best LLC Services
• Best Registered Agent Services

Managing Your LLC

• How To Get an EIN for an LLC
• Best State To Form an LLC
• How To Add a Member to an LLC
• How To Transfer LLC Ownership
• How To Change an LLC Address
• How To Dissolve an LLC

By default, an LLC is claimed on your personal taxes and treated as a pass-through entity. If elected to be taxed as a partnership or corporation, there will likely be additional taxes to be aware of. 16 states and Washington, D.C. have franchise taxes that impact LLC owners.

When starting an LLC, you should be sure to determine your tax obligations, as paying taxes is important for keeping your business in good standing.

If you’d like to learn more about which states may be more advantageous to start your LLC, explore our guide to the Best States to Form an LLC.