An LLC protects your personal assets, gives you flexibility in how you're taxed, and takes less than an afternoon to file in most states. Over 5.6 million American entrepreneurs formed new businesses in 2025 alone, and the LLC was, by far, the most common structure they chose. This guide walks you through every step: choosing your name, filing your paperwork, and staying compliant after your LLC is live.
Key takeaways
- Choose a business name, designate a registered agent, determine your management structure, prepare an operating agreement, file articles of organization, get an employer identification number (EIN), and obtain necessary licenses and permits.
- Stay compliant with federal and state law, address your tax structure early, and keep business and personal finances completely separate.
- There are eight distinct LLC structures. Understanding how they differ helps you select the one that best serves your goals.
What is an LLC?
A limited liability company (LLC) is a business structure that combines the liability protection of a corporation with the tax flexibility and operational simplicity of a partnership. As a legally separate entity from its owners, an LLC shields members' personal assets from business debts and legal judgments.
The IRS treats an LLC as a pass-through entity by default, meaning business income flows directly to the owners' personal tax returns without being taxed at the business level first. LLCs can also elect to be taxed as an S corporation or C corporation if that's more advantageous. LLC owners are called members, and there's no cap on how many an LLC can have.
The pros and cons of starting an LLC
An LLC is the most popular business structure in the United States, but it isn't right for every situation. Before you file anything, weigh these advantages and drawbacks against your specific goals.
Pros of forming an LLC
- Limited liability protection. An LLC separates your personal assets from your business obligations. Members are generally not personally responsible for business liabilities or debts, according to the SBA.
- Management options. Unlike corporations with rigid governance requirements, LLCs let you run the business yourself or appoint managers without extensive formality.
- Tax flexibility. You can elect how your LLC is taxed—as a sole proprietorship, partnership, or an S corp or C corp—depending on what's most advantageous for your situation.
- Flexible ownership. LLC members can be individuals, other companies, or trusts. There's no limit on the number of members and no restriction on who can own a stake, which is a significant advantage over S corporations, which cap shareholders at 100 and restrict foreign ownership.
- Credibility and simplicity. An LLC is a formal, state-registered entity that signals legitimacy to clients, vendors, and financial institutions while carrying fewer ongoing compliance burdens than a corporation.
Cons of forming an LLC
- Ownership transfer challenges. In multi-member LLCs, transferring ownership typically requires consent from all members, which can complicate exits or buyouts.
- Limited lifespan in some states. Certain states may require dissolution if a member dies or declares bankruptcy, unless the operating agreement addresses the scenario.
- Self-employment taxes. Members classified as sole proprietors or partners must pay Medicare and Social Security taxes out of pocket on their share of profits.
- State-by-state variation. LLC laws, fees, and ongoing requirements differ significantly across states, creating compliance complexity if you operate in multiple locations.
If liability protection and tax flexibility are your priorities, an LLC is typically the strongest choice for a small business. If you anticipate needing venture capital, complex institutional ownership, or a public offering, speak with an attorney about whether a corporation better serves those goals.
Which state should you form your LLC in?
For most business owners, the answer is simple: form your LLC in the state where you live and operate. This keeps costs low and compliance straightforward by avoiding dual registration.
Forming in a different state is a common strategy that often doesn't benefit small businesses as much as advertised. If you form in Delaware but operate in California, you'll need to register as a foreign LLC in California anyway, pay fees and file reports in both states, and maintain registered agents in both. You end up with more complexity and higher costs, not lower.
That said, certain situations make out-of-state formation worth considering:
- Delaware is preferred for businesses seeking venture capital or planning to go public—81.4% of U.S. IPOs in 2024 chose Delaware as their corporate home. Delaware's well-developed corporate law, experienced courts, and investor-friendly structure make it the default for startups on a fundraising path.
- Wyoming is attractive for privacy-focused owners, as it allows anonymous LLCs and has no state income tax.
- Nevada offers strong privacy protections and no state corporate income tax, though its filing fees are higher than Wyoming's.
If you're a freelancer, consultant, tradesperson, or local business owner, it’s usually best to just form in your home state. If you're building a company with outside investors or complex ownership, consult an attorney before choosing a formation state.
The 7 steps to start an LLC
To form an LLC, you'll need to choose a unique business name, designate a registered agent, determine your management structure, prepare an operating agreement, file articles of organization with your state, obtain an EIN, and secure the necessary business licenses and permits. Filing online can be completed in an afternoon, with approval arriving in as little as a few business days in most states.
Step 1: Choose your business name
Your business name is your first legal decision, and the rules around it matter more than most people expect. Every state has specific naming requirements for LLCs. In most cases, your chosen name must:
- Be distinguishable from existing businesses. All states require your name to be clearly different from other registered companies. Run a business name search through LegalZoom’s free LLC lookup tool or your Secretary of State's website before committing to a name.
- Include a business-type designator. Your official name must contain "limited liability company," "LLC," or a state-approved variation, typically at the end of the name.
- Avoid restricted terms. Words like "bank," "insurance," or "federal" often require special regulatory approval and supporting documentation.
It’s also a good idea to run a USPTO trademark search before finalizing your name. A name that's available in your state could still infringe on an existing federal trademark, which creates legal exposure down the road.
Beyond the legal requirements, think strategically about how specific your name should be. Arizona business attorney Omaima Poonawala, who has worked exclusively with small business owners for over 12 years, offers this perspective:
“While it may be tempting to register your new LLC with a name that's catchy and distinctive, I often advise my clients to stick with something simple and basic. There can be drawbacks from being too specific, like 'Jenny's Yoga Studio, LLC.' You might start out as a yoga studio, but you end up having success as a coffee shop. Use a dba [doing business as] to register business names that reflect your current or planned operations and actually build your brand.”
Corporate & Trademark Attorney
Most states allow you to reserve a business name before you're ready to file. Submit your state's name reservation form and the required fee to hold the name, typically for 60 to 120 days, while you finalize your formation plans.
Step 2: Designate a registered agent
Every LLC is legally required to have a registered agent, also called a resident agent or statutory agent. This person or entity receives official legal documents on behalf of your LLC, including lawsuits, subpoenas, government notices, and state tax documents, and delivers them promptly to the right person in your organization.
Important: Missing service of process because no one was available can result in a default judgment against your LLC. This is not a formality to treat casually.
Requirements vary by state, but the registered agent must be either a state resident over 18 with a physical street address in the state (not a P.O. box) or a company authorized to provide registered agent services in the state. You have three options in most states:
- Act as your own registered agent. This works if you have a physical address in the state and are consistently available during normal business hours.
- Designate an employee or trusted individual. Reliable for established businesses with stable physical locations.
- Hire a professional registered agent service. The best option if your business lacks a physical location in the state, no one is reliably present at your address during business hours, you work from home and want your personal address out of public records, or you operate across multiple states.
A professional registered agent service provides an added privacy layer and ensures time-sensitive legal documents are never missed.
Step 3: Determine your LLC's management structure
Before drafting your operating agreement, decide how your LLC will be run. There are two structures:
- Member-managed LLC. All LLC members participate directly in day-to-day operations and decision-making. This is the most common structure for smaller LLCs where owners want to stay hands-on.
- Manager-managed LLC. One or more designated managers handle daily operations. The managers don't need to be members or owners of the LLC. This structure works well when some members are passive investors, when the business is large enough to need professional management, or when owners want a clean separation between ownership and operations.
Some states require you to declare your management structure when filing your articles of organization. Get this right from the start, because changing it later requires amending your formation documents and updating your operating agreement.
Step 4: Prepare an LLC operating agreement
An LLC operating agreement is a written contract among members that governs how the business runs. It covers ownership interests, financial guidelines, operational rules, and procedures for handling member changes, disputes, and dissolution.
Even where an operating agreement isn't legally required, drafting one is strongly recommended for every LLC, including single-member LLCs. A well-written operating agreement demonstrates that your LLC operates as a true, separate business entity, which strengthens your liability protection. It also lets you override state default laws that may not align with how you actually want to run your business.
“Whenever a client comes to me about an internal business dispute, my first question is always the same: 'What does your operating agreement say?' A well-drafted operating agreement will clearly lay out the LLC's rules for key issues like who owns how much of the company, how members can sell or transfer ownership interests, resolve disputes, etc. If the LLC has no operating agreement, I may have to work with the client to comb through emails and other documents to piece together agreements on these matters. The result is less certainty and higher legal fees.”
Corporate & Trademark Attorney
At a minimum, every LLC operating agreement should address:
- Ownership structure and capital contributions. Document each member's ownership percentage, initial investment, and how future capital needs will be handled.
- Profit and loss distribution. Specify how profits and losses are allocated, when distributions occur, and the method of payment. Distributions are often proportional to ownership, but that's not always the case.
- Management and voting rights. Define who controls day-to-day operations, which decisions require a member vote, what voting thresholds apply, and whether any member holds veto rights.
- Member changes. Establish buy-sell provisions, rights of first refusal, how membership interests are valued, and what happens when a member exits or dies.
- Dissolution procedures. Specify what triggers dissolution and how assets would be distributed.
- Dispute resolution. Include mediation or arbitration clauses to resolve disagreements before litigation becomes necessary.
For example, your operating agreement might specify that Member A owns 60% and Member B owns 40%, that profits are distributed quarterly in proportion to ownership, and that any member wishing to sell their interest must first offer it to the other members at fair market value. Those details in writing prevent the assumptions and misunderstandings that fracture business relationships.
Single-member LLCs can often use a standard LLC operating agreement template to get started. Multi-member LLCs should strongly consider working with a qualified business attorney. The upfront cost is almost always worth it compared to the expense of resolving a preventable dispute later.
Step 5: File your articles of organization
Once you've selected your name, registered agent, and management structure, file your LLC's official formation documents with the state. Depending on your state, this document may be called articles of organization, articles of formation, certificate of organization, or certificate of formation.
Your articles of organization typically include the LLC name and business address, the purpose and duration of the LLC, management structure, registered agent name and address, and organizer signatures. Most states allow you to file online. See the cost section below for current filing fee ranges.
Once approved, you'll receive a certificate of formation confirming your LLC officially exists. In some states, including Arizona, Nebraska, and New York, you must also publish a notice of formation in a local newspaper before the formation is fully certified. New York's requirement is notably strict: You must publish in two newspapers and file proof with the state within 120 days, or your LLC's authority to do business can be suspended.
How long does it take to form an LLC?
Processing time varies significantly by state and filing method.
| Filing method | Typical processing time |
| Standard online filing | 1–5 business days (faster states); 2–4 weeks (slower states) |
| Standard mail filing | 4–6 weeks in most states |
| Expedited filing | Same-day to 3 business days, depending on the state |
California, New York, and a few other states have longer standard processing times. If you need your LLC active quickly, check whether your state offers expedited processing, and factor the additional fee into your budget.
Step 6: Get an EIN and open a business bank account
Once your LLC is officially formed, obtain an employer identification number from the IRS. An EIN is a nine-digit number that identifies your business for federal tax purposes, the business equivalent of a Social Security number.
Any LLC with more than one member or any employees must have an EIN for tax filing, hiring, and license applications. Single-member LLCs without employees may not be strictly required to obtain one, but most should anyway. Using an EIN instead of your Social Security number reduces the risk of identity theft and keeps your personal information out of business records. Nearly all financial institutions also require an EIN to open a business bank account. You can apply for an EIN at no cost on the IRS website.
A dedicated business bank account is equally critical. Mixing personal and business finances makes tax filing significantly more complicated and can undermine the liability protection your LLC was designed to provide. Courts look at financial separation as a key indicator of whether an LLC is a real, separate entity.
A business credit card also helps by keeping personal and business transactions distinct and building your business credit profile over time.
Step 7: Obtain business licenses and permits
Depending on your industry and location, you may need one or more licenses or permits before you can legally operate. The most common types include:
- Seller's permit. Required if you sell taxable goods or services in states that charge sales tax. This permit authorizes you to collect and remit sales tax to the appropriate state agency.
- General business license. Some states require a general operating license for all businesses. More commonly, your city or county will require a local business license.
- Industry-specific licenses. Food service, healthcare, construction, financial services, alcohol retail, and other regulated industries require specialized licenses, professional certifications, occupancy permits, and more.
- Foreign LLC registration. If you operate in states beyond where your LLC was formed, you must register as a foreign LLC in each of those states.
- DBA (doing business as). A DBA is only required if you conduct business under a name different from your official LLC name. Requirements vary by location.
Industry trade associations, your Secretary of State's office, and local government websites are reliable resources for identifying what applies to your specific business.
What to do after you form your LLC
Forming your LLC is the beginning, not the finish line. Once your formation is approved, several time-sensitive tasks need attention. Some are legally required to operate; others can save you significant money if addressed early.
1. Get LLC-specific tax advice
The IRS has no separate tax classification for LLCs. By default, single-member LLCs are taxed as sole proprietorships and multi-member LLCs are taxed as partnerships, but LLCs can elect to be taxed as an S corp or C corp if doing so is advantageous. Mishandling your LLC's taxes can lead to penalties and interest from the IRS for incorrect or late filings, missed deductions for legitimate business expenses, and audit costs if tax errors trigger IRS scrutiny.
| Tax classification | Best for | Key benefit |
| Sole proprietorship | Single-member LLCs | Pass-through taxation; profits reported on personal return without business-level tax |
| Partnership | Multi-member LLCs | Pass-through taxation; each member pays taxes on their proportional share |
| S corporation | Profitable LLCs seeking to reduce self-employment taxes | Potential self-employment tax savings; income passes through to shareholders |
| C corporation | High-growth LLCs seeking outside investment | Broader tax planning options; preferred structure for institutional investors |
Consult a qualified tax professional to determine the most advantageous classification for your LLC's size, income level, and growth plans. The election window matters. S corp elections, for example, must typically be made within a specific timeframe in your tax year.
2. Protect your LLC's liability shield
Forming an LLC doesn't permanently guarantee liability protection. Courts can disregard the LLC structure and hold owners personally liable if the LLC appears to be operating as an alter ego of the owner rather than a legitimate, separate business. This is known as piercing the corporate veil, which is “the most litigated issue in corporate law,” according to John H. Matheson in the Berkeley Business Law Journal.
To keep your liability protection intact:
- Maintain a separate business bank account. Commingling personal and business funds is one of the fastest ways to invite veil-piercing.
- Sign contracts in the LLC's name. Always identify yourself as a representative of the LLC, not as an individual, when entering into agreements.
- Keep accurate financial records. Maintain separate books, file required tax returns, and document major business decisions.
- Follow your operating agreement. Courts look at whether members actually operate the LLC according to its governing documents.
- File annual reports on time. Staying in good standing with the state reinforces the LLC's legitimate separate existence.
3. Register your LLC in other states (if applicable)
The state where you file is your LLC's domestic state. If you later expand operations into other states by opening a physical location, hiring employees, or conducting regular business there, you must register as a foreign LLC in each of those states. Failing to register in a state where you're actively doing business can result in significant fines and back fees.
To register as a foreign LLC:
- Obtain a certificate of good standing from your home state confirming your LLC is compliant.
- Apply for foreign qualification with the Secretary of State in the target state, submitting the required application and fee.
- Appoint a registered agent with a physical address in the new state.
- Review local laws to ensure your business practices comply with the new state's regulations.
- Prepare for ongoing compliance. You'll need to file annual reports and pay fees in every state where you're registered.
How much does it cost to start an LLC?
The total cost to form an LLC depends on your state, the services you choose, and your business' complexity. A simple single-member LLC in a low-fee state can cost well under $200 to start. A multi-member LLC requiring an attorney-drafted operating agreement, multiple licenses, and registered agent service across states could cost considerably more.
Fees are subject to change, so verify current amounts with your state before filing.
Initial formation costs
- State filing fees for articles of organization: $35–$500, with most states in the $50–$200 range
- Expedited filing: typically an additional $50–$150
- Formation service fees: varies by provider and package
Common additional costs
| Service | Estimated cost |
| Registered agent service | $100–$300 per year |
| Operating agreement (attorney-drafted) | $500–$2,000 |
| Operating agreement (template) | Free |
| Name reservation | $10–$50 in most states |
| Business licenses and permits | $50 to several hundred dollars, depending on industry and location |
The 8 types of LLCs: Choosing the right fit
Not all LLCs are created equal. There are eight distinct types, each designed for different ownership goals, business structures, and legal needs.
| LLC type | Best for | Key features |
| Domestic LLC | Most businesses | Operates within its state of formation; simplest to create and maintain |
| Foreign LLC | Multi-state operations | Operates in a state different from where it was formed; must register in each additional state |
| Professional LLC (PLLC) | Licensed professionals | Designed for doctors, lawyers, and accountants; state laws govern membership eligibility |
| Restricted LLC | Estate planning | Cannot distribute profits for 10 years; profits reinvested; offers specific tax advantages |
| Anonymous LLC | Privacy-focused owners | Owner identities not publicly disclosed; available in Delaware, Nevada, New Mexico, and Wyoming only |
| Series LLC | Multiple business ventures | Parent LLC with separate sub-LLCs, each with its own members, assets, and liabilities |
| Low-Profit LLC (L3C) | Social enterprises | Hybrid nonprofit/for-profit; designed for businesses with a primary social mission |
| Nonprofit LLC | Charitable organizations | Can earn profits but must reinvest them toward charitable goals; complex tax requirements apply |
If your business involves licensed professionals, multi-state operations, estate planning, or a social mission, there's an LLC structure built for your situation. Don't default to a domestic LLC without confirming it's the right fit.
How LLCs compare to sole proprietorships and corporations
- Sole proprietorship: No formation paperwork required, and business income flows directly to your personal return. There's zero liability protection, though. Your personal assets are fully exposed to business debts and lawsuits. Simple, but not safe.
- Corporation (C corp): Offers strong liability protection and is the preferred structure for businesses seeking venture capital or planning to go public. C corps face double taxation: the business pays corporate income tax, then shareholders pay tax again on dividends. That makes a C corp a poor fit for most small businesses.
- Corporation (S corp): Avoids double taxation through pass-through treatment but comes with strict limitations: no more than 100 shareholders, all of whom must be U.S. citizens or permanent residents. S corp status is often more efficiently accessed as a tax election within an LLC rather than as a separate corporate structure.
- LLC: Balances the simplicity of a sole proprietorship with the liability protection of a corporation, and adds tax flexibility that neither alternative can match. For most small business owners, it's the clear winner.
Do you need an attorney to form an LLC?
You're not required to hire an attorney to form an LLC. You can file the articles of organization yourself or use a formation service to handle the paperwork. That said, an attorney adds meaningful value in certain situations:
- Multi-member LLCs. When there are multiple owners, a well-drafted operating agreement is essential, and the stakes of getting it wrong are high. An attorney can structure the agreement to address your specific ownership arrangement, succession plans, and dispute resolution process.
- Complex or regulated industries. Healthcare, finance, cannabis, real estate, and other regulated sectors have licensing requirements and entity restrictions that benefit from professional guidance.
- Uncertainty about structure. If you're unsure whether an LLC, PLLC, S corp, or C corp is right for your situation, an attorney or tax advisor can help you model the tradeoffs before you commit.
For a straightforward single-member LLC in an unregulated industry, a reliable formation service and a free operating agreement template may be all you need. For anything more complex, the cost of professional guidance is almost always less than the cost of fixing a poorly structured business later.
Start your LLC today
Reserve your name. File your articles. Get your EIN. Open a business account. The steps are straightforward, and the protection is real.
If you're ready to move forward, LegalZoom's LLC formation service handles the paperwork so you can focus on building your business.
Find the right state to form an LLC
Find the right state to form an LLC
Every state has different rules, costs, and considerations for LLC formation.
FAQs about starting an LLC
What's the fastest way to start an LLC?
File your articles of organization online through your state's Secretary of State website or a formation service like LegalZoom. Most states process online filings within a few business days. Expedited options, available in most states, can reduce that to same-day or 24–48 hours. Before filing, confirm your business name is available and have your registered agent information ready.
Where should I form my LLC?
Form in the state where you live and do business. It's the simplest, least expensive option for most owners. Forming in Delaware, Wyoming, or Nevada only makes sense in specific situations, such as seeking venture capital or prioritizing owner privacy, and usually requires registering as a foreign LLC in your home state anyway, adding cost and complexity.
Can I use my personal bank account for my LLC?
No. Mixing personal and business finances weakens your liability protection and complicates tax filing. Open a dedicated business bank account as soon as your LLC is formed. Courts treat financial separation as a key indicator that your LLC is a real, distinct entity rather than just an extension of you personally.
How does LLC liability protection work, and can I lose it?
An LLC is a legally separate entity, so members are generally not personally liable for business debts or judgments. That protection can be lost, however, if courts determine the LLC was operated as an alter ego of the owner, a concept called piercing the corporate veil. Keeping separate finances, signing contracts in the LLC's name, following your operating agreement, and staying in good standing with the state all protect against this outcome.
Am I self-employed if I own an LLC?
Yes. If your LLC is classified as a sole proprietorship or partnership for tax purposes, you are self-employed and must pay self-employment taxes on your share of profits. Some profitable LLCs elect S corp status to reduce this burden by splitting income between salary and distributions.
Is forming an LLC worth it?
For most small business owners, yes. An LLC provides meaningful liability protection at a relatively low cost, with more flexibility than a corporation and more protection than a sole proprietorship. A tax advisor and attorney can help confirm whether an LLC is the right fit for your specific circumstances.
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