How to Start an LLC: A Step-by-Step Guide for Small Businesses
This guide is general information, not legal advice. Laws differ from state to state and change over time. For advice about your situation, talk to a licensed lawyer in your state.
A limited liability company (LLC) is one of the most popular business structures in the United States. It can protect your personal assets from business debts and lawsuits, and it is simpler to run than a corporation. Here is how to form one.
Why choose an LLC?
- Limited liability: generally, the owners (called members) are not personally responsible for the company’s debts and legal obligations.
- Flexible taxes: by default, a single-member LLC is taxed like a sole proprietorship and a multi-member LLC like a partnership, so profits “pass through” to the owners’ tax returns. An LLC can also elect to be taxed as a corporation.
- Less paperwork: fewer formalities than a corporation, such as no requirement for a board of directors in most states.
Step 1: Choose your state
Most small businesses form an LLC in the state where they operate. Forming in another state can mean paying fees and filing reports in two states, because you usually must register as a “foreign” LLC where you actually do business.
Step 2: Pick a name
The name must be distinguishable from other businesses registered in your state and usually must include “LLC” or “Limited Liability Company.” Search your secretary of state’s business database, and check for trademarks and a matching domain name.
Step 3: Appoint a registered agent
A registered agent receives legal papers and official notices for the LLC. The agent must have a physical address in the state. You can serve as your own agent or hire a registered agent service.
Step 4: File articles of organization
File the formation document, often called articles of organization or a certificate of formation, with the state, usually online, and pay the filing fee. Fees vary widely by state. Some states also require publishing a notice in a newspaper after formation.
Step 5: Create an operating agreement
An operating agreement sets out ownership percentages, how decisions are made, how profits are shared, and what happens if a member leaves or dies. Even single-member LLCs benefit from one: it helps show the business is separate from you personally.
Step 6: Get an EIN
An Employer Identification Number from the IRS is the business’s tax ID. You need one to hire employees and usually to open a business bank account. Applying directly with the IRS at irs.gov is free.
Step 7: Licenses, permits and bank account
- Check city, county and state licensing requirements for your industry.
- Register for state sales tax and employer taxes if they apply.
- Open a separate business bank account and keep business and personal money apart.
Keeping your LLC in good standing
- File annual or biennial reports and pay state fees on time.
- Keep your registered agent information current.
- Sign contracts in the LLC’s name, as a member or manager of the company.
- Avoid mixing personal and business funds. Courts can disregard the LLC’s liability protection, called “piercing the veil,” when owners treat the company as an extension of themselves.
- Check current federal and state reporting rules, which change from time to time.
When to talk to a business lawyer
Many owners form a simple LLC on their own. A business lawyer is worth it when there are multiple owners, outside investors, significant assets or liability risks, or when you need a carefully drafted operating agreement. An accountant can help you choose the best tax treatment.
Find a Business lawyer near you
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