Do I Need an LLC to Start a Business?

You don't need an LLC to start a business, but, for many businesses the benefits of an LLC far outweigh the cost and hassle of setting one up.

Ready to start your business? Plans start at $0 + filing fees.

Trustpilot star rating bar
do i need an llc to start a business

Contents

Updated on: July 31, 2024
Read time: 3 min

An LLC, or limited liability company, provides personal liability protection and a formal business structure. You can also get those things by forming a corporation or other type of business entity. It's also perfectly legal to open a business without setting up any formal structure. You'll gain simplicity but miss out on some key protections.

Here's a look at the risks and benefits of starting a business without an LLC.

Two women whiteboard notes

Starting a business without an LLC

If you don't form an LLC, there are two types of legal options for running your business. The first is to file paperwork with your state to establish another type of business entity, such as a corporation or limited liability partnership.

Each business entity type has its own benefits, but all of them have one key feature: They limit your liability for business debts. 

Your other choice is to operate your business without creating a formal business entity at all. If you are the only owner, you'll be a sole proprietor. If you own your business with one or more other people, you will be a general partnership. Going this route has a few advantages:

  • Ease. You can be up and running without having to file documents with the state. However, you may still need a business license or permits from your locality, and if your business name isn't the same as your own name, you may have to register a fictitious name, or DBA ("doing business as").
  • Inexpensive. You won't have to pay your state's business formation fee or annual reporting fee. You also won't need to pay someone to act as your registered agent.
  • Proof of concept. This may be especially appealing if your new business is a solo side gig and you're not sure you'll really make much money. You can always decide to form an LLC later.

Starting a business without an LLC does, however, carry significant risks, especially if you have business partners or employees.

Risks of starting a business without an LLC

If you don't form an LLC or other business entity, you leave your personal finances vulnerable to business problems, and your operations may suffer from the lack of formal structure.

Disadvantages of starting a business without an LLC include:

  • Personal liability. If you're a sole proprietor or general partner and your business is sued or has unpaid creditors, you personally face liability. Everything you own is at risk. You also may be liable for the business-related activities of your co-owners and employees. An LLC changes the equation. As an LLC owner, you might lose everything you have invested in the business, but your personal home, bank account, and other assets are protected. This is one of the main benefits of an LLC or other business entity.
  • Lack of structure. Many business partners don't give much thought to the details of how to divide responsibilities, profits, and losses, or what will happen if there are disagreements or someone wants to leave. These issues will come up eventually. Your LLC operating agreement form sets up rules and a framework that can minimize expensive conflicts later.
  • Limited funding. Banks and investors may be reluctant to loan or invest money in a sole proprietorship or general partnership.
  • Proprietary name. Two business entities can't have the same name in the same state, and forming an LLC helps ensure that the name you have chosen is unique and will stay that way.
Ready to start your business? Plans start at $0 + filing fees.Start My LLC
Twitter logoFacebook logoLinkedIn logoReddit logo

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

92 days ago
Trustpilot star rating bar

Great service

From the beginning the experience has been great. Super easy set up of my LLC, i have the concierge package and they are amazing, Teresa Scherbing is awesome. She is always there to answer any questions i may have.

Stanley Bolanos
64 days ago
Trustpilot star rating bar

Was very easy to use and I got my LLC…

Was very easy to use and I got my LLC the same day. I was SHOCKED. I know every state is different but it was like a miracle. Thank you LZoom!

Erica Walters
65 days ago
Trustpilot star rating bar

My experience has been excellent from…

My experience has been excellent from the first day opening my LLC, and continues to be great now that my business is thriving. All of my important documents are organized and secured on their sight. Which is amazing when getting loans and doing my taxes. They also provide great customer service every time I call with questions. Would highly recommend using LegalZoom. Plan to start another business and will be using them again. Thank you LegalZoom!

George Wells
64 days ago
Trustpilot star rating bar

I find that LegalZoom has all the…

I find that LegalZoom has all the answers if you're starting a business an LLC and incorporation or you're doing a trust or a Will. These are the people you want to trust don't go to an expensive attorney you're just throwing your money away. Legal soon gets five stars!

Sean Christopher
64 days ago
Trustpilot star rating bar

Representative was highly skilled

Representative was highly skilled, knowledgeable, and promptly took appropriate actions to assure that my LLC is in total compliance with New York State regs. Excellent service!

Edward Jordon
72 days ago
Trustpilot star rating bar

Just efficient and easy

Just efficient and easy. Made my filing of an LLC simple and stress free

Stefanie ONeill
71 days ago
Trustpilot star rating bar

Great service

Great service! Thank you to Monica for helping me establish my new LLC

ZS
71 days ago
Trustpilot star rating bar

Five Stars For LegalZoom

LegalZoom offers a streamlined and accessible platform for creating an LLC, simplifying complex legal procedures for entrepreneurs. Their user-friendly interface and comprehensive guidance ensure that even individuals without legal expertise can confidently establish their businesses. Overall, LegalZoom enhances efficiency and provides valuable support in the LLC formation process.

CLC
71 days ago
Trustpilot star rating bar

Being new to this process of starting…

Being new to this process of starting an LLC, LegalZoom has been there to walk me through it. Making the process easy and leaving me with a good feeling of confidence. Their business hours are very good and they're open on Saturday too

Eric Geyer
76 days ago
Trustpilot star rating bar

Alifer was so helpful in setting up my…

Alifer was so helpful in setting up my LLC and refunding me my cost from my DBA that was processing!!

Morgan Keats
77 days ago
Trustpilot star rating bar

Considering this was my fist time…

Considering this was my fist time filing an LLC, the site was very user friendly and made the process very streamlined. Will def refer to others!

Kat H
80 days ago
Trustpilot star rating bar

Legal zoom helped me set up an LLC with…

Legal zoom helped me set up an LLC with ease and great customer service

Lori Willinski
94 days ago
Trustpilot star rating bar

I could've never completed my LLC…

I could've never completed my LLC without the help from legal zoom. They made it so easy.

Christie H.
93 days ago
Trustpilot star rating bar

Very helpful and professional

Very helpful and professional. Knowledgeable of all the LLC requirements and compliance guidelines.

Klaeton Orsted
Rated4.6out of 5 based on23,703+ reviewson

Showing our favorite reviews