If you are wondering how to start an LLC, the good news is that it is one of the simplest legal steps a small business owner can take. In most states, you can file the paperwork online in an afternoon for a few hundred dollars or less, without a lawyer. The harder part is understanding what an LLC does and does not protect, how it is taxed, and which ongoing fees and rules come with it.
This guide walks through the whole process in eight steps, explains the costs state by state in general terms, and covers the mistakes that cause new owners the most trouble. It is general information, not legal or tax advice, so check the details for your state before you file.
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What an LLC is, in plain English
A limited liability company, or LLC, is a type of business structure created under state law. Its main job is to separate your personal assets from your business. If the business is sued or cannot pay its debts, creditors generally can only go after what the business owns, not your house, car or personal savings.
An LLC is also flexible. It can have one owner or many. Owners, called members, can run it themselves or appoint managers. And for tax purposes, it can be treated like a sole proprietorship, a partnership or a corporation, depending on what makes sense for you.
That combination of liability protection and flexibility is why the LLC has become the most popular structure for new small businesses in the United States, from freelance designers and food trucks to rental property owners and small online shops.
LLC vs. sole proprietorship vs. corporation
If you start selling a product or service without registering anything, you are automatically a sole proprietor, or a general partnership if you have partners. That is legal and simple, but there is no separation between you and the business. If the business owes money or loses a lawsuit, your personal assets are on the line.
A corporation offers liability protection too, but it comes with more formality: a board of directors, shareholders, annual meetings and minutes. A standard C corporation also pays its own income tax, and shareholders pay tax again on dividends, which is known as double taxation.
An LLC sits in the middle. You get liability protection similar to a corporation’s, with much less paperwork and, by default, only one layer of tax. The U.S. Small Business Administration has a helpful side-by-side comparison of business structures if you want to see all the options.
How to start an LLC in 8 simple steps
The exact forms and fees vary by state, but the process follows the same pattern almost everywhere.
Step 1: Choose your state
For most small businesses, the right state is the one where you live and operate. You may have heard that Delaware, Wyoming or Nevada are better places to form an LLC. They do have business-friendly laws and, in some cases, lower fees or more privacy. But if you form an LLC in another state and then do business in your home state, you will usually have to register there as a “foreign” LLC too, which means paying two sets of fees and hiring a registered agent in the other state.
Unless you are raising money from investors who require a specific state, or you have a clear legal reason, forming in your home state is usually cheaper and simpler.
Step 2: Pick and check your business name
Your LLC’s name must be different from other businesses registered in your state, and it usually has to include “LLC,” “L.L.C.” or “Limited Liability Company.” Most states restrict words like “bank” or “insurance” unless you have the right license.
Search your secretary of state’s business database to see if the name is available. It is also worth searching the U.S. Patent and Trademark Office’s trademark database and checking whether a matching website domain and social media handles are free. Some states let you reserve a name for a small fee while you prepare the rest of the paperwork.
Step 3: Choose a registered agent
Every LLC needs a registered agent: a person or company with a physical address in the state who can receive legal papers, such as lawsuits and official notices, on the business’s behalf during normal business hours.
You can be your own registered agent if you have an address in the state and are usually available there. Many owners prefer to pay a registered agent service, often about $50 to $300 a year, to keep their home address off public records and to make sure important documents are never missed.
Step 4: File your articles of organization
This is the step that actually creates your LLC. The document is usually called articles of organization, though some states, including Texas and Delaware, call it a certificate of formation. It typically asks for the LLC’s name, address, registered agent and whether it will be managed by its members or by managers.
Most states let you file online through the secretary of state’s website. Filing fees vary widely, from under $100 in many states to $500 in Massachusetts. Once your filing is approved, which can take anywhere from a few minutes to a few weeks, your LLC legally exists.
Step 5: Write an operating agreement
An operating agreement is the LLC’s internal rulebook. It sets out who owns what percentage, how profits and losses are shared, how decisions are made, what happens if a member wants to leave or dies, and how the business can be dissolved.
Only a few states, such as California, Delaware, Maine, Missouri and New York, require one by law, but every LLC should have one. For a single-member LLC, it helps prove that the business is separate from you, which matters if your liability protection is ever challenged. For a multi-member LLC, it can prevent expensive disputes between partners.
Step 6: Get a free EIN from the IRS
An Employer Identification Number, or EIN, is like a Social Security number for your business. You need one to open a business bank account, hire employees and file certain tax returns. Multi-member LLCs need one in all cases.
You can apply for an EIN online directly through the IRS, and it is completely free. The online application usually gives you the number immediately. Be careful with websites that look official but charge a fee to get an EIN for you. You never need to pay for one.
Step 7: Open a business bank account
Keeping business money separate from personal money is one of the most important things you can do. Open a checking account in the LLC’s name using your EIN, articles of organization and, in many cases, your operating agreement.
Run every business sale and expense through that account. Mixing personal and business funds makes bookkeeping harder and, more seriously, can weaken the liability protection that is the whole point of forming an LLC.
Step 8: Get licenses, permits and tax registrations
Forming an LLC does not automatically give you permission to operate. Depending on your business and location, you may need a general business license from your city or county, a professional license, a health permit, a home occupation permit or zoning approval.
If you sell physical products, you will probably need to register with your state’s tax agency to collect sales tax. If you hire employees, you will need to register for state payroll taxes and unemployment insurance. The SBA and your state’s small business office can help you find the right licenses for your industry.
A note on beneficial ownership reporting
In 2024, many new LLCs were told they had to file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network, a federal agency that fights money laundering. That rule changed in 2025. FinCEN issued a rule exempting companies created in the United States, and their owners who are U.S. persons, from BOI reporting.
That means most American-owned LLCs no longer need to file. Foreign companies registered to do business in the United States may still have obligations. Because this area has changed several times, check FinCEN’s website for the current rules before assuming you are exempt.
How much it costs to start an LLC
The main one-time cost is your state’s filing fee, which ranges from under $100 to $500 depending on the state. Add optional costs such as name reservation, a registered agent service and expedited processing if you are in a hurry.
The ongoing costs are where some owners get surprised. Many states require an annual or biennial report with a fee. California charges an $800 minimum annual franchise tax for most LLCs, whether or not the business makes money. New York requires new LLCs to publish a notice of formation in two newspapers, which can cost well over $1,000 in some counties, including in New York City.
Before you file, look up both the formation fee and the annual fees for your state. The difference between a cheap state and an expensive one can add up to thousands of dollars over a few years.
How an LLC is taxed
By default, the IRS does not treat an LLC as a separate taxpayer. A single-member LLC is taxed like a sole proprietorship: you report business income and expenses on Schedule C with your personal tax return. A multi-member LLC is taxed like a partnership: it files an informational return, and each member reports their share of the profit on their own return.
In both cases, the owners usually pay self-employment tax, which covers Social Security and Medicare, on their share of the profit. That tax is 15.3 percent on most earnings, and it is often the biggest surprise for new business owners.
An LLC can also choose to be taxed as an S corporation or a C corporation. The S corporation election can reduce self-employment taxes for some profitable businesses, because owners can pay themselves a reasonable salary and take the rest as distributions. It also adds payroll costs and paperwork, so it usually only makes sense once profits reach a certain level. A tax professional can tell you whether it is worth it in your case.
Keeping your liability protection
An LLC protects your personal assets only if you treat it as a separate business. Courts can “pierce the veil” and hold owners personally responsible when the line between owner and business is blurred.
To keep your protection strong:
- Keep business and personal money in separate accounts, and never pay personal bills from the business account
- Sign contracts in the LLC’s name, with your title, not as an individual
- Keep the LLC properly funded to cover its expected obligations
- File your state’s annual reports and pay fees on time so the LLC stays in good standing
- Keep basic records of major decisions, especially in multi-member LLCs
It is also worth knowing what an LLC does not cover. If you personally cause harm, for example through professional negligence or a car accident while driving for work, you can still be held personally liable. That is why many businesses also carry general liability or professional liability insurance.
Single-member vs. multi-member LLCs
A single-member LLC is the simplest version: one owner, simple taxes and full control. It suits freelancers, consultants and small side businesses.
A multi-member LLC adds partners, and with them the need for a detailed operating agreement. Decide early how you will handle disagreements, what happens if one partner wants to sell or stops contributing, and how profits will be divided if contributions are unequal. Those conversations are much easier before there is money on the table.
If you plan to bring in partners later, you can add members to an existing LLC, but it usually requires amending the operating agreement and may change how the business is taxed.
Do you need a lawyer or a formation service?
Many owners file their own LLC paperwork without help, and for a simple single-member business that is usually fine. State websites walk you through the forms, and the fees are the same whether you file yourself or pay someone.
Online formation services charge extra for convenience and often try to sell add-ons you may not need, such as expensive registered agent packages or “compliance kits.” Compare their total cost with filing directly.
A lawyer is worth considering if you have several partners, significant investment, intellectual property to protect, or a business in a heavily regulated industry. An accountant is worth talking to about taxes before your first year ends, whatever structure you choose.
Common mistakes new LLC owners make
The same problems come up again and again:
- Forming in Delaware or Wyoming without a reason, then paying fees in two states
- Skipping the operating agreement because the state does not require it
- Using a personal bank account for business transactions
- Forgetting the annual report, which can lead to penalties or the state dissolving the LLC
- Paying a third-party website for an EIN that the IRS provides for free
- Assuming the LLC protects you from your own professional mistakes
- Not setting aside money for self-employment tax and quarterly estimated payments
Most of these cost little to avoid and a lot to fix.
When an LLC might not be the right choice
An LLC is not ideal for everyone. If you plan to raise venture capital, investors usually prefer a Delaware C corporation because of how equity and stock options work. If you are just testing a small side project with almost no risk, it may make sense to operate as a sole proprietor until the business proves itself.
Some professionals, such as doctors, lawyers and accountants, may need to form a professional LLC or a professional corporation under special rules in their state. And if you already have an LLC for one business, think carefully before running an unrelated venture through it, because one business’s liabilities could then threaten the other.
Before you commit, it helps to write a simple business plan. Our guide on how to write a business plan covers the steps.
How to start an LLC: common questions
How long does it take to start an LLC?
Online filings in many states are approved within a few days, and some are approved almost immediately. Paper filings can take several weeks.
How much does it cost to start an LLC?
State filing fees range from under $100 to $500. Some states also charge annual fees or taxes, such as California’s $800 minimum franchise tax.
Can I be my own registered agent?
Yes, if you have a physical address in the state and are available there during normal business hours.
Do I need an EIN for a single-member LLC?
Not always for tax purposes, but you will usually need one to open a business bank account or hire employees. It is free from the IRS.
Does an LLC protect me from all lawsuits?
No. It generally protects your personal assets from business debts and claims against the business, but not from your own personal negligence or wrongdoing.
Start with a name search on your secretary of state’s website today, and you could have your LLC approved before the end of the week. For more business guides, see our business section.
This article is general information and not legal or tax advice. Rules and fees vary by state and change over time. Consult a qualified attorney or tax professional about your situation.
