How to Start an LLC

LLC stands for “limited liability company”. It is defined as a business structure that is allowed by state statute that combining some elements of a sole proprietorship or partnership with aspects of a corporation. This unique classification, like a corporation, enables an LLC to be considered a separate legal entity, and its owners have limited personal liability for the business’s affairs (often called personal asset protection). The process includes registration formalities that vary by state. And like a partnership or sole proprietorship, an LLC offers flexibility and simple maintenance; there aren’t complicated requirements like establishing a board of directors, keeping minutes, or holding shareholder meetings. (see more on our LLC definition page).

Follow these steps to start an LLC:

1. Name your LLC

Now that you’ve decided you want to form an LLC, it’s time to bring your dream to life with its own name — and yes, it must be unique. To keep things simple and stress-free, your LLC name must be unique from any other in your state to stay compliant and start strong.

The classification rules as to how different your LLC’s name must be from others vary from state to state. Although sometimes all it takes is switching up the punctuation or changing a word from singular to plural to qualify, it’s usually a smoother process when the names are more distinct. However, one component that is always required for the registration is the inclusion of “limited liability company” or an abbreviation of it at the end of the business name. The acceptable abbreviations also vary by state. For specific LLC State Guides select from below.

How to Get a limited liability company with a Unique Name

It’s important to do your research to check if your desired business name is available. Google is helpful, as is checking around on social media, but you will also want to complete a business database search on your Secretary of State website.

Your LLC name needs to be different from other LLCs in your state, and it also can’t be previously trademarked. There are two kinds of trademarks to be aware of: federal and state. Visit the U.S. Patent and Trademark Office (USPTO) site and search your business name or logo to make sure it hasn’t been federally trademarked.

Determining whether your desired business name already has a state trademark is trickier because many states don’t have a search engine for checking existing trademarks. Fortunately, the USPTO has a page linking to the office overseeing trademarks in each state. You can get started by contacting the appropriate office in your state.

Trademarking Names for LLCs

Once you’ve determined that it’s available to use, you have the option of registering your own trademark. A state trademark is less expensive and much less complicated to get; however, it does restrict your trademark benefits to the state it’s recognized in.

On the other hand, federal trademarks are more costly and can take longer to get, but you can use your trademark anywhere in the United States, and there is much more protection provided for your company. Federal trademarks also allow for the ® symbol, whereas state trademarks only allow TM (trademark) or SM (service mark). Trademarking your LLC can keep other businesses from using the same name or anything too similar.

Registering a DBA Name

There’s also an option to add a DBA name (“doing business as”) to LLCs. A DBA is just another name to call your business and can be very useful if your LLC offers multiple products or services. It can help differentiate between their specific business concerns.

Each state has different regulations when it comes to naming an LLC. You will often find that certain words are prohibited, including those that are considered profane or obscene or that may mislead people about the nature of the business. Some words are restricted in most states, such as “bank” and other forms of the word (“banking” and “banker”), “engineering,” “insurance,” and “savings.” In some states, business owners who wish to use words such as these must have a certain license and/or fill out additional paperwork.

You’ve spent time coming up with a name for your LLC and researching its availability — now you can think about securing it. Most states will allow you to reserve your desired name for a fee so that you don’t have to worry about someone else nabbing it before you can officially launch your business. Check with your state on the requirements to reserve your business name. Then, go one step further and reserve a domain name for your company website, so you have that set up and ready to go as soon as your business can launch.

2. Choose a registered agent

An LLC must appoint a registered agent to receive legal documents and state notices on its behalf. This person or business — also known in some states as a resident agent, statutory agent, or agent for service of process — acts as the official point of contact.

Having a registered agent is a requirement in the United States. Not having one could mean fines or even the dissolution of your LLC by the state. In addition to legal penalties for being out of compliance, failing to maintain an agent could mean that a process server can’t find you to notify you of a lawsuit. In that scenario, a court case against you could go forward without your knowledge, meaning you wouldn’t even have a chance to defend yourself.

You can be your own registered agent so long as you have a physical street address in the state in which your LLC is filed (P.O. boxes aren’t allowed); however, hiring an outside registered agent service has its benefits.

One drawback of being your own registered agent is the increased likelihood of receiving embarrassing legal documents in front of patrons. Not only can this be humiliating, but it might also damage confidence in your business. Using a separate registered agent at another location can help you avoid these risks.

Another drawback to being your own registered agent is that it takes the flexibility out of your day. Registered agents need to be constantly present at the registered office during normal business hours. If you’re tethered to the office, this means you have less time to take business meetings, attend working events, scope out opportunities, etc. A separate registered agent frees you from this responsibility.

3. File the Articles of Organization in your state

All states require a formation document to officially recognize an LLC. While the name varies — like Articles of Organization, Certificate of Formation, or Certificate of Organization — the purpose stays the same: to register the business with the state and outline its key details.

Filing Requirements for LLCs

Check your Secretary of State’s website to see the filing requirements, as these also vary state by state. You’ll always need basic information about the LLC and its members, including the LLC name and mailing address and the registered agent’s name and address. You might also be asked to state the purpose of the LLC and list any current LLC members and/or managers.

A few parts of the form might be unfamiliar to someone who is just entering the business world. You may be asked whether your LLC is member-managed or manager-managed. In a member-managed LLC, the members take it upon themselves to handle day-to-day operations and decide who’s responsible for what. In a manager-managed LLC, one or more supervisors are chosen by the members to be in charge. As an LLC member, you have the flexibility to shape the management of your company. Whether you opt for a member-managed or manager-managed LLC, each member plays a pivotal role in steering the business towards success.

You’ll also need to list the location of operations, which should be the place in which members work together. If the business is operated from a private home, list your home address. If mail is not deliverable to the place of work, make sure to include a USPS-verified mailing address.

The final, and most important, step is having an organizer of the LLC sign the form. Then, you’re all set to submit it. In most states, this can be done online or by mail. Any instructions for submitting the signed form and payment can be found on your Secretary of State’s website.

4. Create an LLC operating agreement

An LLC benefits from having an operating agreement, which defines ownership terms, roles, and decision-making rules in a legally binding way. Even if not required by your state, this document helps protect personal assets, clarifies responsibilities, and lays out what happens if someone exits the business.

Having an operating agreement can prevent any miscommunication and resolve any conflicts between members. It’s not required by law to file an LLC operating agreement with the Secretary of State, so once all parties have agreed upon the terms and signed it, it’s advisable to keep the document safe and secure with other important paperwork.

Create an operating agreement online

Utilizing an operating agreement template for your LLC can set you up for success regarding having the right business structure and format for this important document.

5. Apply for an EIN and review tax requirements

After officially forming your LLC, you should consider registering it with the federal government by applying for an Employer Identification Number (EIN) from the IRS. Most LLCs must apply for an Employer Identification Number (EIN), which is issued by the Internal Revenue Service (IRS) using Form SS-4.

An EIN is the business equivalent of a personal Social Security number and is required if your LLC has multiple members or any employees. It’s free to apply for a Federal Tax ID Number, a.k.a. Employer Identification Number, and it can conveniently be done on the IRS website. When done online, the EIN is issued immediately.

6. Get the licenses and permits your business needs

After formation, an LLC must secure the proper licenses and permits to operate legally and with confidence. Skipping this step could lead to penalties, so it’s worth getting right from the start.

Don’t worry — this part sounds more intimidating than it really is. The key thing to know is that the types of licenses and permits you’ll need depend on where you’re located and what kind of business you’re running.

Here’s a quick breakdown of what might be required:

• Local licenses and permits – Some cities or counties require a general business license just to operate, while others don’t. Zoning permits are also common, especially if you’re running your business from home or in a commercial space.
• State licenses – These vary a lot depending on the industry. If you’re opening a restaurant, salon, or running anything related to healthcare or construction, there’s a good chance you’ll need a state-level license. Some states also require a general business license.
• Federal licenses – Most small businesses won’t need one, but if you’re selling alcohol, firearms, or operating in industries like aviation or broadcasting, this might apply to you.
• Professional licenses – Certain careers, like real estate agents, accountants, or barbers, require a specific license to legally offer their services.
  

Every state and local government does things a little differently, so the rules for one business may not apply to another — even if they’re in the same state. Some places require a general business license, while others don’t. That’s why it’s so important to check your specific requirements.

Feeling overwhelmed? You’re not alone — but we’ve got you covered. Our Business License Report takes the guesswork out of the process. Just answer a few simple questions about your business, and our partners at Avalara will create a customized report showing exactly which licenses and permits you need, including filing instructions.

Compare LLC to other business structures

Compare how LLCs stand in contrast to other business entities like corporations and partnerships.

Sole Proprietorship

Operating a business as a sole proprietor is relatively low-cost and straightforward, but the major difference between operating as a sole proprietorship versus an LLC is the separation between personal and business. Personal assets are kept separate in an LLC, whereas a sole proprietor’s personal and business expenses are the same. If someone sues the business, they can go after your personal savings and property.

Both LLCs and sole proprietorships benefit from pass-through taxation, avoiding double taxation.

Compare LLCs vs. sole proprietorships.

General Partnership

Here, you are dealing with formalities. Forming an LLC requires several specifics, including paperwork that is drafted and filed with the Secretary of State and paying the filing fee. When forming a general partnership with someone, it requires a much less formal agreement between the two parties. Like sole proprietorships, general partnerships have pass-through taxation.

Visit LLCs vs. Partnerships for a full comparison.

Limited Liability Partnership (LLP)

When it comes to personal liability, LLCs generally offer more broad protection than LLPs. With an LLC, members are usually not personally liable if the LLC is sued or owes any debts.

An LLP may offer limited liability in the same way as an LLC, but this depends on the state in which your business is formed. For example, in some states, an LLP only affords liability protection from other partners’ negligence, but you would still be personally liable for the business’s overall debts and financial obligations.

Some states also require at least one LLP partner to assume unlimited personal liability, while the other partners have limited liability. For this reason, it’s crucial that you check with the Secretary of State office in your state to learn about the specific rules and regulations. 

Compare LLCs vs. LLPs in more detail.

C Corporation

C corporations (the default form of corporation) experience double taxation; profits are taxed at the corporate level and again when distributed as dividends to shareholders. LLCs, with their pass-through taxation, avoid this double hit.

C corporations have a structured management hierarchy with a board of directors and officers, while LLCs allow for more flexible management arrangements.

With a C corporation, you can sell stocks. This not only can help in raising funds, but it also makes ownership transfer easier. LLCs can’t sell stock, and transferring ownership of them can be complex.

Learn more about LLCs vs. C corps.

S Corporation

Rather than a business entity itself, an S corporation is a federal tax election. A C corporation or an LLC can apply to be an S-corp. An S corporation has pass-through taxation, but there are more restrictions for qualifying; for example, an S corp can have no more than 100 members.

Learn more about S corporations vs. LLCs.

What are the advantages and disadvantages of LLCs?

LLC Advantages

1. Limited Liability: Your personal assets are generally protected from business debts and legal liabilities. If the business faces financial trouble or legal issues, your personal savings and property are usually off the hook.
2. Pass-Through Taxation: By default, LLCs have pass-through taxation, which allows the profits and losses of the business to “pass through” to the individual members, who then report this income on their personal tax returns. This helps avoid the “double taxation” issue faced by C corporations, where profits are taxed at the corporate level and again at the individual level when distributed as dividends to shareholders. S corporations also have pass-through taxation.
3. Flexible Taxation: You have the option to choose how you want your business to be taxed. By default, an LLC has “pass-through” taxation, where the business profits flow straight to your personal tax return without first being taxed at the business level (unlike most corporations). Alternatively, you can opt to be taxed as an S corporation or a C corporation, which can provide other tax benefits for certain LLCs. 
4. Simplified Paperwork: Compared to corporations, LLCs have less administrative burden. You won’t need to deal with regular meetings, detailed record-keeping, or complex decision-making processes. This simplicity saves time and effort.
5. Credibility: Adding “LLC” to your business name can boost your credibility. It signals to clients, partners, banks, and investors that you’ve taken steps to establish a legitimate business structure, potentially enhancing trust and professionalism.

LLC Disadvantages

1. Limited Life: In some states, the existence of an LLC may be terminated if a member leaves or dies. It’s easier for a corporation to exist in perpetuity.
2. Self-Employment Taxes: While LLCs offer flexibility in taxation, they can also subject you to self-employment taxes. This can lead to higher tax payments compared to certain corporate structures.
3. Complexity in Multiple States: If you plan to operate in multiple states, you may face additional paperwork and fees to register your LLC in each state. This can add complexity and costs to your business operations.
4. Less-Established Structure: Compared to corporations, which have well-defined structures like boards of directors and shareholders, LLCs can be perceived as less established. This might matter when dealing with certain partners, investors, or clients.
5. Limited Investment Opportunities: If you’re looking to raise substantial capital from investors or plan to go public, an LLC structure might not be the most suitable option. Corporations often offer more favorable options for these scenarios. 

In a nutshell, forming an LLC comes with the perks of liability protection, tax flexibility, and simplicity. However, it’s important to consider potential limitations like limited life, self-employment taxes, and less-established structure. Assessing your business’s needs and goals will help you determine if an LLC is the right choice for you.

Is an LLC free? Creating an LLC isn’t free, as it involves a range of costs that vary by state. Typically, the formation filing fees range between $50 and $500. This process can be accomplished either online using a credit or debit card, or by mail with a check or money order, through your Secretary of State’s website.

Beyond the initial filing fee, states may also mandate additional charges such as business license fees, publication fees, name reservation fees, and others. Moreover, an LLC carries recurring costs for its maintenance, including filing annual or biennial reports, renewing licenses and permits, and paying franchise taxes. These costs will all vary widely by state.

There are several different types of LLCs, each with its own entity characteristics and purposes. Here’s a breakdown of the main types:

Single-Member LLCs (SMLLC): A single-member LLC is owned and operated by a single individual (member) or entity. It’s the simplest type and offers limited liability protection for the owner (member). Taxes are usually reported on the owner’s personal tax return. 

Multi-Member LLCs: A multi-member LLC has two or more owners (members). It’s great for businesses with multiple partners or investors. Each member’s share of profits, losses, and responsibilities is typically outlined in the operating agreement.

Series LLCs: Available only in a few states, a Series LLC can hold multiple “series” or subdivisions within one overarching entity. Each series can have its own assets, liabilities, and operations, providing some separation between them. This is useful for businesses with various ventures or properties.

Professional LLCs (PLLC): Certain licensed professionals like doctors, lawyers, accountants, and architects can form a professional LLC in some states. This structure doesn’t protect a member from malpractice claims against themselves, but it can protect them from malpractice claims against another member of the PLLC. This type of LLC is only available in certain states and for certain licensed professions.

Low-Profit Limited Liability Companies (L3C): An L3C is designed for businesses that aim to achieve a specific social or charitable goal while also making a profit. It’s a hybrid between a traditional LLC and a nonprofit, meant to encourage socially beneficial endeavors.

Foreign LLCs: This entity type applies when you form an LLC in one state but want to operate in another state. You’ll need to register your LLC as a foreign LLC in the state you want to do business in, complying with that state’s regulations. 

Remember that the availability and regulations of these types of LLCs can vary depending on the state you’re in. It’s always a good idea to consult legal and financial experts to determine the best type of LLC for your specific situation and location.

The benefits of an LLC include limited liability protection for personal assets, flexible tax options, simplified paperwork compared to corporations, and increased credibility.

Limited liability protection: One of the top perks of LLCs is that it usually shields your personal assets, like your house or savings, from business debts and liabilities. If the business runs into trouble or gets sued, your personal assets generally stay safe. It’s like having a protective bubble around your personal finances.

Flexible tax options: With an LLC, you get to choose how you want your business to be taxed. By default, an LLC has “pass-through” taxation, where the business profits flow straight to your personal tax return without first being taxed at the business level (unlike most corporations). Alternatively, you can opt to be taxed as an S corporation or a C corporation, which can provide other tax benefits for certain LLCs. This flexibility lets you adapt to your financial situation.

Simplified paperwork: Compared to corporations, which can have a mountain of paperwork and formalities, LLCs keep things refreshingly simple. You won’t need to deal with things like shareholder meetings or a board of directors. This means fewer administrative headaches and more time to focus on growing your business.

Increased credibility: Having “LLC” after your business name adds a level of professionalism and credibility. Clients, partners, banks, and investors tend to take you more seriously when you’re not just a sole proprietor. It shows that you’ve gone through the process of establishing a legitimate business structure.

Flexible Membership: LLCs offer a blend of flexibility in membership and management, standing as a middle ground between corporations and partnerships. LLCs can have an unlimited number of members, which can be individuals or other business entities, and can choose to be managed by selected members or outside managers. This flexible management structure, along with the freedom to distribute profits in any agreed manner among members, makes LLCs a less formal and more adaptable choice for entrepreneurs compared to the rigid structure and formalities associated with corporations.

So, when you put all these benefits together, forming an LLC can be a savvy move for your business. It provides protection, flexibility, simplicity, and credibility.

The rules, procedures, and costs associated with forming an LLC can vary significantly from one state to another. Each state has its own set of statutes and regulations governing formation, operation, and dissolution. For instance, the filing fees for setting up an LLC can range from around $50 to $500 or more, depending on the state. Some states, like California, have additional annual taxes and reporting requirements that can add to the cost and administrative burden of operating an LLC. Moreover, the processing times for formation documents can range from a few business days to several weeks, depending on the state and whether expedited processing options are available and utilized.

In addition to varying costs, the level of information required and the procedures for forming an LLC may differ across states. Some states require a detailed list of member names and addresses, while others only require the name of a registered agent and the address of the LLC’s principal office. Furthermore, certain states may have unique naming conventions or restrictions and may require additional approvals for certain types of businesses. For example, New York requires LLCs to publish a notice of formation in two newspapers, which can significantly add to the cost and complexity of forming an LLC in that state. It’s important for entrepreneurs to carefully research and understand the specific LLC formation requirements and costs in their particular state to ensure compliance and to budget appropriately for the process.

Related articles:

• How to get a LLC license
• How to buy a LLC
• What to do after forming a LLC