A limited liability company (LLC) is a common business structure in the United States. Many small-business owners and freelancers consider forming one. The process varies by state, but the general steps are similar.
Important: This article is a general overview of the typical process. It is not legal, tax or financial advice. Requirements, fees and rules vary by state and change over time. Whether an LLC is right for you depends on your circumstances. Consult a qualified attorney, accountant or your state’s official business resources before making decisions.
What Is an LLC?
An LLC is a business entity created under state law. It is commonly described as combining some features of corporations and partnerships. The specific legal and tax implications depend on your situation and state, which is why professional advice is important.
Typical Steps to Form an LLC
Step 1: Choose a State
Many businesses form in the state where they operate. Some consider other states, but forming elsewhere can create additional requirements. A professional can help you decide.
Step 2: Choose a Name
States typically require that an LLC name:
- Be distinguishable from other registered businesses in the state
- Include a designator such as “LLC” or “Limited Liability Company”
- Avoid restricted words without approval
Most states offer an online business name search. You may also want to check domain name availability and trademarks. Some states allow you to reserve a name for a period of time.
Step 3: Appoint a Registered Agent
A registered agent receives official legal and government documents on behalf of the LLC. States have requirements for registered agents, such as having a physical address in the state. Some owners serve as their own agent; others use a registered agent service.
Step 4: File Formation Documents
You typically file a document often called Articles of Organization or a Certificate of Formation with the state, usually through the secretary of state or a similar office. These documents often include:
- LLC name
- Registered agent information
- Business address
- Management structure
- Organizer information
States charge filing fees, which vary. Check your state’s official website for current fees and forms.
Step 5: Create an Operating Agreement
An operating agreement describes how the LLC will be run, including ownership, management, voting and what happens if a member leaves. Some states require one; even where not required, many professionals recommend having one. An attorney can help draft it.
Step 6: Obtain an EIN
An Employer Identification Number (EIN) is issued by the IRS and is used for tax purposes. Many LLCs obtain one, especially if they have employees or multiple members. You can apply through the official IRS website. Be cautious of third-party sites that charge fees for services the IRS provides free.
Step 7: Open a Business Bank Account
Keeping business and personal finances separate is important. See our business bank account guide.
Step 8: Obtain Licenses and Permits
Depending on your business type and location, you may need business licenses or permits at the state, county or city level. Check with local and state agencies.
Step 9: Understand Ongoing Requirements
Many states require periodic reports and fees to keep the LLC in good standing. Other ongoing obligations may include tax filings and maintaining a registered agent. Mark deadlines on your calendar.
Tax Considerations
LLC taxation can be complex and depends on how the LLC is classified and on your circumstances. A qualified tax professional can explain options and obligations.
Setting Up Business Systems
Once your LLC is formed, set up systems to run it:
- Bookkeeping. See bookkeeping basics for small business.
- Invoicing. See invoicing software for freelancers.
- Expense tracking. See our expense tracking apps guide.
- Payroll if you hire. See our hiring your first employee checklist.
DIY vs. Formation Services vs. Attorneys
DIY
Filing yourself through the state website can be straightforward. You handle forms and deadlines.
Formation Services
Online services file on your behalf for a fee and may offer registered agent services. Compare what is included.
Attorneys
Attorneys provide legal advice tailored to your situation and can draft operating agreements.
Common Mistakes
- Skipping research into state requirements
- Mixing personal and business finances
- Missing annual report deadlines
- Not having an operating agreement
- Assuming an LLC is right without professional advice
Using Official Resources
Every state has an office, often the secretary of state, that handles business filings. Official state websites usually provide:
- Name search tools
- Formation forms and online filing
- Current filing fees
- Annual report requirements
- Contact information for questions
The U.S. Small Business Administration and the IRS also publish free resources for new business owners. Start with official sources before paying for third-party services, and be cautious of mailings that look official but come from private companies offering paid compliance services.
Keeping Good Records
Keep copies of formation documents, your operating agreement, EIN confirmation, licenses and annual report filings in a secure place. Many owners keep both digital and paper copies. These documents are often requested when opening bank accounts, applying for loans or working with professionals.
After Formation: A First-Month Checklist
- Store formation documents and the operating agreement securely
- Obtain an EIN if needed
- Open a business bank account
- Apply for required licenses and permits
- Set up bookkeeping
- Calendar annual report and tax deadlines
- Review insurance needs with a qualified agent
Working through this list early helps your new business start on a solid footing.
Frequently Asked Questions
How long does it take to form an LLC?
It varies by state and filing method. Check your state’s processing times.
How much does it cost?
Filing fees vary by state. Check official state websites.
Do I need an attorney?
Not always, but an attorney can provide advice for your situation.
Do I need an EIN?
Many LLCs need one. Check IRS guidance or ask a professional.
Is an LLC right for me?
It depends on your circumstances. Consult qualified professionals.
The Bottom Line
Forming an LLC typically involves choosing a name, appointing a registered agent, filing formation documents, creating an operating agreement, obtaining an EIN and meeting ongoing requirements. Requirements vary by state, so use official resources and consult qualified professionals.
Editorial note: Biz Benchly is independent and reader-supported. This guide is based on research into manufacturer documentation, published specifications and widely accepted best practices; we have not been paid to mention any product. If we add affiliate links in the future, they will be clearly disclosed per our Affiliate Disclosure.