How to Form an LLC

Important Steps After Starting an LLC

Separate Personal Assets From Your Business

LLCs offer limited liability protection. Using dedicated business banking and credit accounts is essential to protecting your business' corporate veil

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued.

We recommend opening a business bank account immediately after starting your business. Read our How to Open a Business Checking Account guide to get started.

Register Your LLC for State Taxes

Depending on the nature and location of your business, you may be required to register for several forms of state tax:

• If you are selling a physical product, you'll typically need to register your company for sales & use tax.
• If you have employees, you may need to register for unemployment insurance tax and employee withholding tax.

Read our LLC Tax Guide to learn how taxes will impact your business.

Additionally, most states require LLCs to file an annual report, which involves updating your registered agent address and paying your annual fee or franchise tax. Learn how to file your LLC annual report by reading our 50-state guides.

Understand Your LLC’s Federal Tax Options

LLCs are taxed as pass-through entities. Pass-through taxation means that all of the business’s profit passes through to the LLC member’s individual tax returns.

The LLC member then pays self-employment taxes and income tax on their share of the business’s income after any tax deductible expenses are taken out. This is the default way to tax an LLC.

LLCs can also elect to be taxed as S corporations (S corps) or C corporations (C corps). The S corporation tax status allows LLC members to be taxed as employees of the business. This can reduce tax burden in certain circumstances. Visit our LLC vs S Corp guide for more information.

How you pay yourself as an owner will also affect your federal taxes. Visit our guide to learn more about how to pay yourself in an LLC.

Set Up Business Accounting

Having a business accountant will help you take advantage of the tax benefits of an LLC and will save you and your business thousands of dollars in taxes each year.

Starting a relationship with a business accountant as soon as you start your business will ensure that you have the best advice from the very beginning.

Get Licenses and Permits

When you start an LLC, you’ll need to determine if your business needs any licenses or permits to stay compliant. On the federal level, there are a handful of business activities that require licenses and/or permits:

On the state and local level, business license requirements vary depending on your state of formation, as well as on county and city laws.

To get started on a business licensing search for your LLC, read our business licensing guide.

Get Business Insurance

In most states, all businesses with employees (including LLCs and corporations) are required to get workers compensation insurance. Take an in-depth look at this subject in our workers compensation insurance guide.

General liability insurance isn’t typically a legal requirement, but it's strongly recommended. This policy protects your business assets from lawsuits. Without it, a legal claim could force your company out of business.

Follow Hiring Laws

When you decide to hire employees for your LLC, you must follow these legal compliance requirements:

• Verify that new employees are able to work in the US.
• Report employees as "new hires" to the state.
• Provide workers compensation insurance for employees.
• Withhold employee taxes.
• Print compliance posters and place them in visible areas of your work space.
• Pay employees at least minimum wage and as often as your state requires (weekly, bi-weekly, etc.)

How to Form an LLC FAQ

What is the best business structure for a small business?

Limited liability companies (LLCs) can protect your personal assets and LLCs are the simplest and most affordable legal business entity to form and maintain.

Read our Business Structure guide if you need help choosing the right business type for your small business.

Is it better to start a corporation or LLC for my small business?

A corporation is a complex legal business entity that is run by a board of directors and owned by shareholders. Small business owners will only benefit from starting a corporation if they rely on outside investors or need to exchange stock publicly.

Learn why LLCs are the best legal business entity for most small businesses in our LLC vs Corporation guide.

What are the benefits of an LLC vs sole proprietorship?

Unlike a sole proprietorship, an LLC is a separate entity from the business’s owner. Most sole proprietors would benefit from converting their sole proprietorships to LLCs because LLCs offer liability protection and are inexpensive to start and maintain.

Only businesses with zero liability should operate as sole proprietorships because there isn’t any legal separation between a sole proprietor and the business.

Visit our LLC vs Sole Proprietorship guide for more details.

What are the advantages and disadvantages of an LLC?

Limited liability companies (LLCs) can protect your personal assets and increase your business’s credibility. LLCs are the simplest and most affordable legal business entity to form and maintain.

LLCs aren’t good for attracting investors. If your business relies on outside investors, take a look at our How to Start a Corporation guide.

Can you start an LLC on your own?

Yes, you can start an LLC on your own by following our state-based LLC formation guides. If you would prefer to have a professional service form your LLC, we recommend checking out our review of the Best LLC Services.

What is the average cost to set up an LLC?

The cost of creating an LLC will vary depending on your state. Expect to pay a minimum of between $50 and $500 to form an LLC, and about $100 annually to maintain the LLC.

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