How to start an LLC in 7 steps

It's easy to create a new LLC by filing paperwork with the state. But to set yourself up for success, you'll also need to think about your business name, finances, an operating agreement, and licenses and permits. Here's a step-by-step guide.

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A woman in a red sweater is sitting at a table with her coffee, working on her laptop to form an LLC online.

by Jane Haskins, Esq.
updated May 31, 2023 ·  13min read

Limited liability companies, or LLCs, provide business owners with liability protection, less cost, and less complexity than a corporation. LLC owners have flexibility in how they manage their business and the way it will be taxed. This makes it an appealing choice for small business owners.

It isn't difficult to learn how to start an LLC, but there are steps to follow and things to think about along the way. Here's a seven-step approach for how to start an LLC and start it off on the right foot.

Step 1: Choose a name & register it

One of the first steps you'll take when you start an LLC is to choose a name for it. Although state laws vary, your LLC name generally:

  • Must be distinguishable from other business entity names already registered with the state. You can search business name availability on the website of the state agency that handles business filings.
  • Must indicate that the business is a limited liability company by including the words "limited liability company," "L.L.C.," or “LLC" at the end of the business name. Other words or abbreviations may also be acceptable, depending on your state.

Most states allow you to reserve a name temporarily if you've chosen an available name but aren't ready to file LLC formation paperwork yet. To reserve a name, submit your state's name reservation form along with the required filing fee. Rules, fees, and forms vary by state.

Choosing an available name is only one part of the business naming process, Emily Grubman, owner of Title Case naming consultancy, says. Grubman advises looking at trademark availability as soon as you're sure of the LLC or brand name you want to use. "The biggest hurdle when you want to grow your business is, 'Can we get this name from a trademark perspective?'" she says. Even if you don't plan to apply for trademark protection, your name might infringe on another company's trademark. "The last thing you want to do is to have to rename your business down the line."

Grubman notes that many LLCs operate under a "doing business as," or DBA, name. Knowing you have the option to pick a DBA that meets your marketing and trademark needs can relieve some of the pressure of picking the perfect business name when you start an LLC.

"I aways say the first principle of naming is, 'Do no harm.' It shouldn't hold you back or cause you problems or make things any harder than they need to be," Grubman says. That means names shouldn't infringe trademarks or be hard to spell or pronounce. “The other aspect is making sure there are minimal negative connotations. In terms of an LLC name specifically, that is the name that's going to show up on your contracts and your invoices, so you might want to opt for something a little more serious" and save quirky, off-color, or funny names for a DBA.

Setting up an LLC is a great way for business owners to limit their liability for company debts. Here’s a step-by-step guide to forming an LLC.

Step 2: Choose a registered agent

A registered agent (also known as a resident agent or statutory agent) has one job: to receive legal documents, such as lawsuits and subpoenas, on behalf of your LLC and then deliver them promptly to the appropriate person at your business.

Every state has its own requirements for who can serve as a registered agent, but typically the agent must be either (1) a state resident over the age of 18 who has a physical address in the state (known as the “registered office''), or (2) a company authorized to provide registered agent services in the state. In most states you can act as your own registered agent, name an employee or other individual as an agent, or hire a registered agent service.

If you start an LLC in a state where you don't have a physical location, you'll probably need to hire a registered agent. You might also hire an agent if you don't have anyone available at your business location, if you're a home-based business and don't want your personal address listed in public records if you're concerned about having legal documents served on you in front of employees or customers, or if you prefer the reliability of professional registered agent services.

Step 3: Prepare an LLC operating agreement

An LLC operating agreement is a blueprint for how you'll run your limited liability company. Your operating agreement includes information about your business structure; the roles, ownership interests, and contributions of the LLC owners (or “members"); the way profits are divided; and how you'll admit new members or deal with a departing member.

Although operating agreements aren't required by law, good operating agreements can minimize conflict among members and help things go more smoothly when issues do arise. The best time to negotiate and draft an operating agreement is at the beginning of your business's life when members are most likely to be committed to a shared vision for the business.

The operating agreement is an internal document. You don't file it with the state, but you do need to keep it with your important business paperwork.

Step 4: File LLC articles of organization

You officially create an LLC by filing articles of organization with your state. The articles typically include the following information:

  • The name of the LLC
  • The address of the LLC's main place of business
  • The duration and purpose of the LLC
  • Whether the LLC is managed by its members or a manager
  • The name of the registered agent and address of the agent's registered office
  • The signature of one or more of the LLC's organizers

Almost all states allow you to file articles of organization online. Filing fees vary by state and are usually between about $50 and $150, with a handful of states charging more than $200.

Some states process LLC articles of organization instantly, while others take anywhere from a few days to a few weeks. In some states you can pay an extra fee to expedite processing. After your LLC paperwork is approved, you'll receive a certificate of formation from the state confirming that your limited liability company officially exists.

Step 5: Get an EIN & bank account

Once your limited liability company is official, you can apply for an employer identification number from the Internal Revenue Service. The EIN is a nine-digit number that identifies your business for federal tax purposes—similar to an individual's Social Security number.

If your LLC has employees or more than one member, you must have an employer identification number. Single-member LLCs with no employees have the option to use the member's Social Security number, but your financial institution may ask for an EIN to open a business bank account. An EIN also helps protect your personal SSN.

In most states, LLCs are inexpensive to set up and maintain. Many attorneys recommend that small business owners form an LLC because it provides liability protection at a minimal cost.

You can get an employer identification number at no cost on the IRS website. Once you have an EIN, you can set up a business bank account and deposit company funds into it. Use your business account for all business income and expenses, and don't mix business and personal finances. Keeping your accounts separate helps you to protect your business assets and personal assets. You risk losing your personal liability protection if you commingle business and personal funds.

Step 6: Obtain business licenses and permits

Depending on the type of business you have and where it's located, you may need one or more licenses or permits to operate legally. Here's an overview of some of the more common ones.

  • Seller's permit. If you sell taxable goods or services in a state that charges sales tax, you'll probably need a sales tax license or seller's permit from the state. The permit allows you to collect sales tax and then remit it to the state.
  • General business licenses. A few states require all registered businesses to have a general business or operating license. More commonly, your city or county may require you to have a business license.
  • Industry-specific licenses. Federal, state, and local governments all have a hand in regulating businesses, issuing everything from liquor licenses to occupancy permits and commercial fishing licenses.
  • Registration in other states. If your business has a location in a state other than the one where you formed your LLC, you'll need to register as a foreign LLC in that state.
  • DBAs. In general, you need to file a DBA if you are doing business under a name other than your legal name. If your LLC only uses its official limited liability company name, it doesn't need a DBA. But if you're using a different name in your business, you'll probably need to file a DBA. DBA requirements vary by location, and you may need to file with your city, county, or state.

Industry trade associations and local and state government offices are good resources for determining the types of licenses and permits your business may need.

Step 7: Get tax advice and file any required forms

Meeting with a tax adviser at the beginning of your business' life can save you money in the long run. A CPA can advise you on the best tax classification, what business expenses are deductible, the kinds of financial records you need to keep, and the tax forms you'll need to file. "Having that conversation with an accountant sets things up really nicely" and avoids complications down the road, says corporate accountant Kayla Peña, the owner of Accountful Advising.

From a tax standpoint, LLCs are unique because the IRS does not have a specific LLC tax classification. By default, the IRS classifies one-member LLCs as sole proprietorships or “disregarded entities." Multi-member LLCs are classified as partnerships. But an LLC can also elect to be taxed as an S corp or a C corp by filing a federal tax election form with the IRS.

If your LLC is classified as a sole proprietorship or partnership, you're self-employed. You'll report business income and expenses on your personal tax return (partnerships also file a partnership return). You'll pay income and self-employment (Medicare and Social Security) taxes on your share of business profits. Estimated taxes should be paid quarterly to avoid fees and penalties. The default taxation system is simple, especially for single-member LLCs, but some profitable LLCs save on self-employment taxes by electing S corp taxation.

In an S corp, profits also pass through to the owners' personal tax returns. But S corp owners can be company employees who pay Social Security and Medicare taxes only on their salaries, not on the entire profit of the company. Salaries must, however, be reasonable for the type of work you do and the income of the company. To be taxed as an S corp, an LLC must be eligible and meet election form filing deadlines.

S corporations aren't for everyone, Peña says. "You have to make sure the business is stable enough to pay your salary. You should be making a certain amount of money. And converting to an S corp comes with additional costs. You'll need to run payroll, you may have additional tax forms to file, and you may have to enroll in state workers' compensation and unemployment programs. The truth is, most small businesses don't make enough money in the early stages to convert to an S corp."

For most new businesses, Peña recommends setting up accounting software so you can track your income and expenses and understand your cash flow, income, and expenses. That's the approach she's taken with her LLC, and she now has financial data over time that can show whether it would make sense to elect S corp taxation. Every business is unique, however, and questions about tax status, reasonable salaries, and deductible expenses can best be answered by a CPA who can look at the specifics of your LLC.


How much does an LLC cost in California?

There is no filing fee for articles of organization to form an LLC in California. However, every LLC registered in California must pay an annual $800 minimum franchise tax, even if it isn't doing any business. LLCs that make more than $250,000 in California income must also pay an annual fee that starts at $900, and increases proportionate to income.

Do you have to pay the $800 California LLC fee the first year?

Under legislation passed in 2020, the $800 in franchise taxes is waived for the first year for LLCs formed between Jan. 1, 2021, and Dec. 31, 2023. The fee is also waived for businesses that had a tax year of 15 days or less and did not do any business in California. After the first year, LLCs must pay franchise tax by the 15th day of the fourth month of the tax year.

Where should I form my LLC?

In most cases, the simplest and least expensive place to start an LLC is the state where you live. If you form an LLC in another state, you'll also need to register your LLC as a foreign business entity in the state where your business is located. You'll need a registered agent in both states, and you'll be responsible for filing annual reports in both states. Regardless of where you form your LLC, you'll have to pay applicable taxes in the state where you conduct business.

What are the 4 types of LLC?

Here are four types of LLCs:

  • Common or ordinary LLC. This is the default type of LLC and the most common type of LLC for small businesses.
  • Professional LLC. Some states require certain licensed professionals to form a professional LLC, or PLLC. PLLCs typically must get approval from a state licensing board before the LLC can be formed. PLLCs are restricted to practicing the applicable profession, and ownership may be wholly or partly restricted to people licensed that profession. Examples of professionals who might form a PLLC include doctors, lawyers, architects, chiropractors, and CPAs.
  • Series LLC. A series LLC consists of a parent or umbrella LLC with one or more sub-LLCs under it. Each sub-LLC is insulated from the others for liability purposes. Series LLCs can be useful for companies that have several businesses or investments, such as a real estate investor with multiple rental properties. Not all states allow series LLCs.
  • Benefit LLC. A benefit LLC has a mission to benefit society as well as earn a profit. Only a few states currently authorize formation of benefit LLCs.

If you aren't sure what type of LLC you should form, get legal advice.

How does LLC liability protection work?

Owners of sole proprietorships and general partnerships have unlimited personal liability for business debts. Partners in a general partnership can also be liable for their partners' actions. When you create an LLC, you establish a new legal entity that exists separately from its owners. An LLC can have its own money, bank accounts, and assets, and it can sign contracts. Because the LLC is a separate entity, the members are not personally liable for business debts or the actions of other members. They remain liable for their own negligent or intentional conduct and for any obligations where they've signed a personal guarantee. Business insurance can further minimize liability for you and your business.

How much money should you start an LLC with?

The amount of money you need to start a new business will vary depending on your business. A business plan will help you estimate your expenses and how much money you'll need to get your business off the ground and keep it running.

There are a few costs related specifically to LLC formation and maintenance. You should have enough money to file formation paperwork, pay for legal and tax advice, hire a registered agent if necessary, and pay annual report filing fees and any annual franchise or operating taxes levied by your state.

Is owning an LLC worth it?

In most states, LLCs are inexpensive to set up and maintain. Many attorneys recommend that small business owners form an LLC because it provides liability protection at a minimal cost. But some states are more expensive than others. If you aren't sure whether an LLC is worth it, get advice from an attorney and a tax adviser.

What is the UK equivalent of an LLC?

The UK doesn't have a business entity that offers the same features as an LLC. A limited company has similar protection as an LLC. However, there is no UK entity that has the flexibility to be taxed as a sole proprietorship, partnership, or corporation. Always get tax advice before setting up a business entity in a foreign country.

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Jane Haskins, Esq.

About the Author

Jane Haskins, Esq.

Jane Haskins is a freelance writer who practiced law for 20 years. Jane has litigated a wide variety of business dispute… Read more

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