How to Form an LLC

Form An LLC in Five Easy Steps

Starting an LLC (Limited Liability Company) is easy. We teach you how to get your LLC up and running quickly, without spending hundreds of dollars on unnecessary legal fees.

STEP 1: Select Your State

For most new business owners, the best option is to form your LLC in the state where you live and where you plan to conduct your business. If your business will have a physical presence (storefronts, offices, sales reps, etc.) in different states, then you will need to register a foreign LLC in every state where you will do business.

There are sometimes benefits to forming your LLC in a state that has business-friendly laws, such as Delaware or Nevada. However, this is rarely worth the extra fees and paperwork of having to register your LLC in multiple states.

Learn more about where to form your LLC.

Select Your State to Begin

STEP 2: Name Your LLC

Choosing your business name is the first step in forming an LLC. Every state has its own rules about what kinds of names are allowed for LLCs. In general, you will need to observe these guidelines:

  • Your name must include the phrase "limited liability company," or one of its abbreviations (LLC or L.L.C.).
  • Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
  • Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.

Do a name search to make sure the name you want is available in your state.

STEP 3: Choose a Registered Agent

A registered agent is a person or business that sends and receives legal papers on your behalf.

These documents include official correspondence like legal summons and document filings, which your registered agent will receive and forward to you.

Most states require every LLC to nominate a registered agent. Your registered agent must be a resident of the state you're doing business in, or a corporation authorized to conduct business in that state. To learn more about choosing a registered agent, check out our article What is a Registered Agent?

STEP 4: File your LLC with the State

To officially create an LLC, you will need to file your documents with the state.

The most common name for this document is "Articles of Organization." It is also known as "Certificate of Formation" or "Certificate of Organization". Your LLC formation document outlines the organizational structure of your business.

When you file your Articles of Organization, you will need to either appoint a manager for your LLC or elect to have your LLC be co-managed by the LLC owners. Learn more about this decision.

STEP 5: Create an LLC Operating Agreement

An LLC operating agreement is a legal document that outlines the ownership structure and member roles of your new LLC.

Although most states do not officially require you to have an Operating Agreement in order to form an LLC, it's still a good idea to have one. There are six main sections of an operating agreement:

  • Organization: Outlines when and where the company was created, who the members are, and how ownership is structured.
  • Management and Voting: Addresses how the company is managed, as well as how the members vote.
  • Capital Contributions: Covers which members financially support the LLC, and how more funds will be raised in the future.
  • Distributions: Outlines how the company's profits and losses are shared among members.
  • Membership Changes: Describes the process for adding or removing members, as well as if and when members can transfer their ownership shares.
  • Dissolution: Explains the circumstances in which the LLC may be dissolved.

For more information read our article, What is an LLC Operating Agreement?

Important Steps After Forming an LLC

Obtain an EIN

An Employer Identification Number (EIN) is like a social security number for your LLC. You will need an EIN if you want to hire employees or open business bank accounts.

You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?

Separate Personal Assets From Your Business

Using dedicated business banking and credit accounts is essential to protect 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.

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 for sales & use tax.
  • If you have employees, you will likely need to register for unemployment insurance tax and employee withholding tax.

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

Set Up Accounting

Even before you officially open for business, there are a lot of expenses to keep track of. An accounting system enables you to keep a close eye on your business finances, including bills, expenses, and income. It also simplifies your annual tax filing.

If you need help, a certified public accountant can work with you to set up an accounting system for your business.

Read our article on business accounting to learn more.

Obtain Licenses and Permits

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

  • Agriculture
  • Alcoholic beverages
  • Aviation
  • Firearms/ammunition
  • Explosives
  • Fish and wildlife
  • Maritime transportation
  • Mining and drilling
  • Nuclear energy
  • Radio/TV broadcasting
  • Transportation and logistics

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

To get a head start on business licensing for your LLC, read our guide.

*Recommended: If you need help, you can always hire a professional business license service. They'll handle the research and application process for you, providing convenience as well as the peace of mind that you have everything you need.

Get Business Insurance

In the vast majority of states, all businesses with employees are required to obtain workers compensation insurance. This insurance covers work-related injuries and diseases, regardless of who is at fault. For an in-depth look at workers compensation insurance, read our article.

General liability insurance is not typically a legal requirement, but it is very strongly recommended. This policy protects your business assets from lawsuits-without it, a legal claim could force your company out of business entirely. A general liability insurance policy covers injuries, property damage, personal liabilities, advertising liabilities, and legal defense and judgment.

Follow Hiring Laws

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

Learn More About LLCs and How to Run a Business

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What is a Limited Liability Company?

LLC stands for Limited Liability Company. Forming an LLC is the simplest way of structuring your business to protect your personal assets in case your business is sued. LLCs can be owned by one or more people, who are known as LLC "members".

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How Much Does it Cost to Form an LLC?

The primary cost of forming an LLC is the state filing fee, which ranges between $40 - $500, depending on your state. In addition, you will also need to pay certain annual fees to maintain your LLC. If you choose to use a service provider to help with the formation process, you will face service costs as well.

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Maintain Your LLC's Coporate Veil

The corporate veil refers to the protection provided by an LLC regarding the ownership's personal liabilities. Simply forming your LLC is not enough to ensure your limited liability protection though, as creditors might be able to sue your business ownership as a means of "piercing" the corporate veil.

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Acquire Certificate of Good Standing

This document serves as proof that your business is current and compliant with your state of formation. Situations where you might need a certificate of good standing include applying for a loan, expanding into another state as a foreign LLC, obtaining licenses and permits, etc.

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LLC Management Structure

There are two different management structures for LLCs: member-managed and manager-managed. Member management tends to work well for a small, close-knit group of members, whereas manager management is preferable if there's a large number of members, or not all of them want to be involved on a day-to-day basis.

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LLC vs. Sole Proprietorship

If you're operating a one-person business, it's worth looking into whether you should form an LLC or remain a sole proprietorship. The sole proprietorship is not technically a legal entity, as it is an unincorporated business, and therefore not legally distinct from its owner. Therefore, the owner is 100% responsible for all of the company's profits and debts.

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LLC Dissolution

If you decide at any point to call it a day and close your business, you should officially dissolve your LLC. By doing so, you reduce your risk of fines or even legal trouble.

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Annual Report

Most states require LLCs to file annual or biennial reports. These filings keep the state updated regarding basic company information, and ensure your LLC remains compliant and in good standing. For the most part, these are simple reports to file, but they must be accurate and timely.

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Doing Business as DBA Namees

Often referred to as trade names, fictitious names, or assumed names, DBA names allow you to conduct business under another name. Instead of being limited to your own legal name, or your LLC's registered business name, a DBA allows you to use an alternate name in an official capacity.

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