How to Start an LLC: Step-by-Step Guide for the United States

A limited liability company (LLC) is a business structure created under state law. Its main appeal is that it separates your personal assets from the business's debts and lawsuits in many situations, while keeping paperwork lighter than a corporation.

What an LLC can do:

• Help protect your personal assets from business debts and many business liabilities when you maintain the company properly.
• Give you flexibility in how the business is taxed. By default, a single-member LLC is generally taxed like a sole proprietorship, and a multi-member LLC like a partnership. An LLC can also elect to be taxed as an S corporation or C corporation if it qualifies.
• Add credibility with customers, banks, and vendors.

What an LLC does not do:

• It does not protect you from your own negligence or personal guarantees you sign.
• It does not remove your tax obligations. Income typically passes through to your personal return unless you elect otherwise.
• It does not replace insurance.
• It will not make a weak business strong.

If you are unsure whether you need one, read our guide on LLC versus sole proprietorship first. This guide is general education, not legal or tax advice. Consult a qualified attorney or accountant for your specific situation.

The sequence below applies broadly across the United States. Details differ by state, so use your state's official site for forms and requirements.

1. Choose your state. Most small businesses form an LLC in the state where they live and operate. Forming elsewhere can add costs, since you may still have to register as a foreign LLC where you do business.
2. Choose a name. The name generally must be distinguishable from other registered businesses in the state and include a designator such as "LLC" or "Limited Liability Company." Search your state's business database, and also check domain names, social handles, and trademarks.
3. Appoint a registered agent. This is a person or company with a physical address in the state who receives legal and official documents on behalf of the LLC. You can be your own agent if you have a physical address and are available during business hours, or hire a commercial service.
4. File the formation document. Usually called Articles of Organization or a Certificate of Formation, filed with the Secretary of State or an equivalent office. Pay the filing fee, which varies by state.
5. Create an operating agreement. A written document describing ownership, management, profit sharing, and what happens if a member leaves. Not every state requires one, but it is strongly recommended even for single-member LLCs.
6. Get an Employer Identification Number (EIN). The IRS issues EINs for free through its website. Beware of paid services that charge for something you can do yourself.
7. Open a business bank account. Keep business and personal money separate.
8. Complete licenses, permits, and tax registrations. Check federal, state, county, and city requirements, including sales tax registration if you sell taxable goods or services.
9. Set up compliance reminders. Calendar your annual report, any franchise or annual taxes, and renewals.

Because LLCs are created by state law, the details vary. Here are the differences that most often surprise new owners.

• Filing fees. Formation fees differ across states, ranging from very low amounts to a few hundred dollars. Check your Secretary of State's current fee schedule rather than relying on a blog.
• Annual reports or fees. Many states require an annual or biennial report with a fee. Some also charge a franchise tax or minimum tax, even if the LLC earns little. California, for example, is widely known for an annual minimum franchise tax on LLCs, so check the Franchise Tax Board's current rules if you operate there.
• Publication requirements. A few states, such as New York, require LLCs to publish a notice of formation in newspapers for a set period, which can add significant cost. Verify your state's rules.
• Registered agent rules. Requirements for who can serve and what address is allowed vary.
• Operating agreement requirements. Some states require one; many only recommend it.
• Beneficial ownership reporting. Federal rules under the Corporate Transparency Act have changed several times in recent years, including who must report. Check FinCEN's official site for the current status before you file.

Should you form in Delaware or Wyoming? These states are popular with larger or investor-backed companies. For a typical local small business, forming in your home state is usually simpler and avoids paying twice. Ask an attorney or accountant if you have a special situation.

Worked cost example (illustrative): suppose your state's filing fee is 100 dollars, the annual report costs 50 dollars, you act as your own registered agent, and you get the EIN free. Year-one cost is 100 dollars, and ongoing cost is 50 dollars a year. If you hire a registered agent service at 150 dollars a year, ongoing cost is 200 dollars. Compare this with the value of liability protection, credibility, and tax flexibility for your business.

Registered agent. The state needs a dependable way to reach your company. If you serve as your own agent, your name and address become part of the public record. That can be a concern for home-based owners. A commercial registered agent keeps your address off the record and handles mail, but charges a yearly fee. If you travel often or work irregular hours, a service may be worth it.

Operating agreement. Even a short agreement can prevent disputes and strengthen the case that your LLC is a separate entity. Include:

• Company name, address, and purpose
• Members and their ownership percentages
• Capital contributions: who put in what
• How profits and losses are shared
• Who manages the company
• How decisions are made and votes counted
• What happens if a member leaves, dies, or wants to sell
• How the LLC can be dissolved

For a single-member LLC, the document is simple but still useful. For multiple members, take extra care, since this is where partners often disagree later. Consider having an attorney review it.

Forming an LLC does not by itself create a new tax bill, but it changes how you report and plan.

• Single-member LLC: generally treated as a disregarded entity, so you report business income and expenses on your personal return (typically Schedule C) and pay self-employment tax on net earnings.
• Multi-member LLC: generally taxed as a partnership, with a partnership return and each member receiving a share of income.
• S corporation election: an eligible LLC can elect S corporation treatment by filing the appropriate IRS form. This can reduce self-employment taxes for some owners but adds payroll requirements and costs. It generally makes more sense once profits are consistently high enough to justify the added complexity.
• Sales and payroll taxes: apply based on what you sell and whether you have employees.
• Estimated taxes: if you owe a meaningful amount, you may need to make quarterly estimated payments.

Illustration of the self-employment tax idea: suppose your LLC nets 60,000 dollars. As a default pass-through, self-employment tax generally applies to most of that net profit. With an S corporation election, you would pay yourself a reasonable salary subject to payroll taxes, and the remaining profit passes through without self-employment tax, but you must run payroll and file additional returns. The right answer depends on your numbers, so have an accountant model it.

Keep separate records, track expenses by category, and set aside part of every payment for taxes.

An LLC's protection can be weakened if you ignore the formalities. Courts can sometimes disregard an LLC when owners treat it as an extension of themselves, which is called piercing the corporate veil. Reduce that risk with a few habits.

• Keep finances separate. Use the business account for all business income and expenses. Do not pay personal bills from it.
• Sign as the company. Use "Your Name, Manager, Company LLC" on contracts and use the company name on invoices.
• Maintain adequate capital and insurance. Carry liability coverage appropriate for your work.
• Follow your operating agreement. Document major decisions in writing.
• File on time. Annual reports and fees prevent administrative dissolution or loss of good standing.
• Update records. Report changes to your address, registered agent, or members as your state requires.
• Do not guarantee debts casually. A personal guarantee overrides the protection for that obligation.

If you plan to operate in multiple states, ask whether you need to register as a foreign LLC in each. If you ever wind down the company, close it formally with the state and the IRS rather than letting it lapse.