What Is an LLC?
An LLC (Limited Liability Company) is a business structure that protects your personal assets from business debts and lawsuits. It combines the liability protection of a corporation with the tax flexibility and simplicity of a sole proprietorship.
Over 80% of new businesses in the US choose the LLC structure because it's affordable to set up, easy to maintain, and offers pass-through taxation (profits are only taxed once on your personal return).
Choose Your State
Most people should form their LLC in the state where they live and do business. While Delaware and Wyoming are popular for their business-friendly laws, forming in another state means you'll need to register as a "foreign LLC" in your home state too — paying double the fees.
Choose Your LLC Name
Your LLC name must:
- Include "LLC," "L.L.C.," or "Limited Liability Company"
- Be distinguishable from other businesses registered in your state
- Not include restricted words like "bank" or "insurance" without proper licensing
Search your state's business database to check availability before filing. Most states offer free online name searches through their Secretary of State website.
Appoint a Registered Agent
Every LLC needs a registered agent — a person or company with a physical address in your state who can receive legal documents (lawsuits, tax notices, government correspondence) on your behalf.
You have three options:
- Be your own agent — Free, but your address becomes public record
- Use a friend or family member — Must be available during business hours
- Hire a professional service — $50-300/year, keeps your address private
File Articles of Organization
This is the official document that creates your LLC. File it with your state's Secretary of State (or equivalent agency). Most states allow online filing.
The form typically requires:
- LLC name and address
- Registered agent name and address
- Names of members (owners) or managers
- Purpose of the business (most states accept "any lawful purpose")
- Whether the LLC is member-managed or manager-managed
Create an Operating Agreement
An operating agreement is an internal document that outlines how your LLC will be run. While not always legally required, it's essential because:
- Banks require it to open a business account
- It strengthens your liability protection
- It prevents disputes between members
- It establishes clear rules for profit distribution, voting, and member exits
Get an EIN (Employer Identification Number)
An EIN is like a Social Security number for your business. You need it to open a business bank account, hire employees, and file taxes. It's free from the IRS and takes about 5 minutes to get online.
Open a Business Bank Account
Keeping business and personal finances separate is crucial for maintaining your LLC's liability protection. You'll need your EIN, Articles of Organization, and operating agreement.
Get Business Licenses and Permits
Depending on your location and industry, you may need federal, state, and local licenses or permits. Common requirements include:
- General business license from your city/county
- Professional licenses (for regulated industries)
- Sales tax permit (if selling physical goods)
- Home occupation permit (if working from home)
How Much Does It Cost to Start an LLC?
Here's a typical cost breakdown:
| Expense | Typical Cost |
|---|---|
| State filing fee | $40 – $500 (varies by state) |
| Registered agent | $0 – $300/year |
| Operating agreement | $0 (DIY) to $1,500 (attorney) |
| EIN | Free |
| Business license | $50 – $400 |
Use our Business Startup Cost Calculator to estimate your total launch budget.
LLC vs Other Business Structures
| Feature | LLC | Sole Prop | S-Corp | C-Corp |
|---|---|---|---|---|
| Liability protection | Yes | No | Yes | Yes |
| Pass-through tax | Yes | Yes | Yes | No |
| Easy to set up | Yes | Yes | No | No |
| Ongoing paperwork | Low | None | High | High |
| Best for | Most small biz | Freelancers | Growing biz | Investors |