Starting a limited liability company (commonly called an LLC) requires choosing a business name, filing formation documents with your state, and setting up a few essentials like a registered agent and an employer identification number. The entire process can often be completed in a single day, though processing times vary by state. Here’s what each step involves and what it will cost.
What an LLC Actually Does for You
An LLC separates your personal assets from your business debts and liabilities. If someone sues your business or it can’t pay its bills, your personal bank accounts, home, and other property are generally protected. This protection is the core reason most small business owners choose an LLC over operating as a sole proprietorship, where no legal barrier exists between you and the business.
LLCs are created under state law, not federal law. That means the specific rules, fees, and paperwork vary depending on where you form your company. You’ll file with your state’s Secretary of State office or its equivalent business filing agency.
Choose a Business Name
Your LLC name must be distinguishable from other business entities already registered in your state. Most states require the name to include “LLC,” “L.L.C.,” or “Limited Liability Company.” Before you settle on a name, search your state’s business entity database (usually available free online through the Secretary of State website) to confirm it’s available.
If you want to operate under a different public-facing name, you can file a “doing business as” (DBA) registration separately. This lets you use a trade name for marketing while keeping your legal LLC name on official documents.
Appoint a Registered Agent
Every LLC is required to have a registered agent: a person or company designated as the official point of contact to receive legal documents, tax notices, and government correspondence on behalf of the business. If your LLC is ever sued, the registered agent is who gets served with the lawsuit paperwork.
The agent must have a physical street address in the state where your LLC is formed (P.O. boxes don’t count) and must be available during normal business hours to accept deliveries in person. You can serve as your own registered agent if you live in the state and are comfortable having your address on public record. Many owners prefer to hire a professional registered agent service instead, which typically costs $50 to $300 per year and keeps a home address off state filings.
File Articles of Organization
The articles of organization (called a “certificate of formation” or “certificate of organization” in some states) is the document that officially creates your LLC. You’ll file it with your state’s business filing office, and it generally asks for just a few pieces of information:
- LLC name and principal business address
- Registered agent name and address
- Management structure, meaning whether the LLC will be managed by its members (owners) or by designated managers
- Organizer information, the name and signature of the person filing the documents
Most states allow online filing, and many process applications within a few business days. Some offer expedited processing for an additional fee if you need approval faster. State filing fees for articles of organization typically range from $35 to $500, with most states falling between $50 and $200.
Create an Operating Agreement
An operating agreement is an internal document that spells out how your LLC will be run. It covers ownership percentages, how profits and losses are divided, what happens if a member wants to leave, and how major decisions get made. Some states require one by law, but even where it’s optional, you should have one.
For single-member LLCs, an operating agreement might seem unnecessary since you’re the only owner. But it serves a critical purpose: it reinforces the legal separation between you and the business. Without one, a court could more easily “pierce the corporate veil,” meaning it could hold you personally liable for business debts by treating the LLC as an extension of you rather than a separate entity.
If your LLC has multiple members, an operating agreement prevents disputes by putting everyone’s expectations in writing before disagreements arise. You can draft one yourself using templates or hire an attorney to customize it. There’s no state filing required for this document; you simply keep it with your business records.
Get an Employer Identification Number
An employer identification number (EIN) is essentially a Social Security number for your business. The IRS issues it for free, and you can apply online at irs.gov and receive your number immediately. You’ll need an EIN to open a business bank account, hire employees, and file business tax returns. Single-member LLCs without employees can technically use the owner’s Social Security number for tax purposes, but getting an EIN is still a good idea because it keeps your personal number off invoices, W-9 forms, and other business documents.
Open a Business Bank Account
Once you have your EIN and a copy of your approved articles of organization, open a dedicated bank account for the LLC. This is not just good bookkeeping practice. Mixing personal and business funds is one of the fastest ways to undermine the liability protection an LLC provides. If your finances are intertwined, a court may decide the LLC is just a shell and allow creditors to go after your personal assets.
Keep all business income and expenses flowing through the business account. Pay yourself a distribution or salary from that account rather than spending business funds directly on personal expenses.
How Your LLC Will Be Taxed
The IRS does not have a specific LLC tax classification. Instead, it treats your LLC based on how many members it has, unless you elect otherwise. A single-member LLC is taxed as a sole proprietorship by default: all profits pass through to your personal tax return, and you pay income tax and self-employment tax on them. A multi-member LLC is taxed as a partnership by default, with each member reporting their share of profits on their personal return.
You also have the option to elect corporate taxation. Filing IRS Form 8832 lets your LLC be taxed as a C corporation, while filing Form 2553 lets it be taxed as an S corporation. An S-corp election can reduce self-employment taxes for owners who pay themselves a reasonable salary, because only the salary portion is subject to payroll taxes while remaining profits pass through as distributions. This election generally makes more sense once your business is consistently profitable above what you’d pay yourself as a salary.
These elections don’t change your LLC’s legal structure at the state level. You’re still an LLC, just taxed differently by the IRS.
Licenses, Permits, and Ongoing Requirements
Forming the LLC is the legal creation of the entity, but you may need additional licenses or permits before you can actually operate. Requirements depend on your industry, your state, and your local city or county. Common examples include general business licenses, professional licenses (for fields like accounting, real estate, or contracting), sales tax permits if you’re selling taxable goods, and home occupation permits if you’re running the business from your residence.
After formation, most states require LLCs to file an annual or biennial report, which is a brief update confirming your business address, registered agent, and member information. These reports come with a filing fee that varies by state. Missing the deadline can result in late fees or, in some states, administrative dissolution of your LLC. Mark the due date on your calendar as soon as your LLC is approved so it doesn’t catch you by surprise a year later.
Some states also charge an annual franchise tax or a minimum tax on LLCs regardless of income. Check your state’s requirements shortly after formation so you’re not blindsided by an unexpected bill.
What the Whole Process Costs
At a minimum, you’ll pay your state’s filing fee for the articles of organization. Beyond that, costs depend on the choices you make. Here’s a realistic breakdown for most new LLC owners:
- State filing fee: $35 to $500, depending on your state
- Registered agent service: $0 if you serve as your own, or $50 to $300 per year for a professional service
- EIN: Free from the IRS
- Operating agreement: Free if you draft your own, $200 to $1,000 or more if you hire an attorney
- Annual report fees: Vary by state, commonly $0 to $300 per year
- Business licenses and permits: Vary widely by location and industry
Online formation services that handle the paperwork for you typically charge $0 to $300 on top of state fees. They can be convenient but aren’t necessary. Filing directly with your state is straightforward, and most Secretary of State websites walk you through the process step by step.