Forming an LLC stands as one of the most important decisions you’ll make as an entrepreneur. This legal structure separates you from the business, so your personal property is not exposed to business debts or lawsuits.
It lets you choose how the business is taxed instead of being locked into one tax system. LLC also makes your business look credible, which can make customers, lenders, and partners take your business more seriously.
Whether you’re starting a cleaning business, launching an AI consulting venture, or pursuing other business opportunities, understanding how to form an LLC properly sets you up for success.
New 2026 compliance requirements, including beneficial ownership reporting deadlines, make it crucial to understand every step, and this guide breaks down how to form an LLC into clear, actionable steps.
Key Takeaways:
- LLCs shield personal assets from business liabilities through legal separation
- State filing requirements vary significantly in fees ($40-$500) and processing times
- You must file beneficial ownership information with FinCEN by strict 2026 deadlines
- Operating agreements protect all LLCs even when state law doesn’t require them
What Is an LLC?
A Limited Liability Company (LLC) is a legal business structure that separates your personal assets from business debts. If your LLC faces lawsuits or bankruptcy, creditors can’t touch your house, car, or savings account.
LLCs differ from sole proprietorships and partnerships because they create a legal barrier between you and your business. Unlike corporations, you won’t deal with board meetings or shareholder requirements.
The IRS treats single-member LLCs as sole proprietorships by default, while multi-member LLCs get partnership tax treatment. You can elect C-corp taxation for your LLC using IRS Form 8832, while S-corp taxation requires a separate election filed with IRS Form 2553.
LLCs are taxed as pass-through entities by default, meaning your business doesn’t pay income tax at the entity level.
What’s more, profit flows directly to your personal returns, with single-member LLCs using Schedule C and multi-member LLCs filing a partnership return, which avoids the double taxation that applies to C-corporations.
Also, your professional credibility increases when clients see “LLC” in your business name. Banks and suppliers take you more seriously, and access to business loans and credit cards improves significantly.
Types of LLCs
Single-Member LLC
One owner controls all business decisions and operations. You get complete liability protection while maintaining simple tax filing on Schedule C of your personal return.
This structure works perfectly for solo entrepreneurs, freelancers, and consultants building home-based businesses. The IRS treats you as a sole proprietorship by default.
Multi-Member LLC
Two or more owners share management responsibilities and profits according to their operating agreement. You’ll file partnership tax returns using Form 1065 and issue Schedule K-1 forms to each member.
Distribution percentages, voting rights, and capital contributions should appear clearly in your operating agreement. This structure suits business partnerships and co-founders launching ventures together.
Series LLC
Available in Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, and Utah. You create multiple “series” under one LLC umbrella, with each series holding separate assets and liabilities. Real estate investors use these to isolate individual properties. Each series can have different members and managers.
Professional LLC (PLLC)
State law requires licensed professionals like doctors, lawyers, dentists, architects, and engineers to form PLLCs rather than standard LLCs.
You maintain personal liability for your own malpractice, but you get protection from business debts and partner malpractice. Check your state’s specific requirements.
Anonymous LLC
New Mexico and Wyoming let you form LLCs without listing owner names on public records. Privacy-focused entrepreneurs and asset protection specialists choose these states to shield their identity. You’ll still file beneficial ownership information with FinCEN, but that database isn’t public.
Nonprofit LLC
Some states allow LLCs organized for charitable or educational purposes. These differ from 501(c)(3) nonprofits in tax treatment. You won’t receive tax-deductible donations, but you gain operational flexibility.
L3C (Low-Profit LLC)
A hybrid structure is available in Vermont, Michigan, and a few other states. Social enterprises use L3Cs to attract program-related investments from foundations while pursuing social good alongside modest profits.
Can you form an LLC before launching? Absolutely. Many entrepreneurs establish their legal structure while validating their business idea to secure their business name.
How to Form an LLC in 2026 Step-by-Step Guide
1. Step 1: Choose Your LLC Name
Your LLC name must be distinguishable from existing businesses in your state. Search your Secretary of State’s business database before getting attached to a name. Every state requires “LLC,” “L.L.C.,” or “Limited Liability Company” in your official name.
Restricted words need special approval. You can’t use “bank,” “insurance,” “university,” or “attorney” without proper licenses and documentation. Check trademark databases to avoid infringement lawsuits. The USPTO database searches federal trademarks.
Reserve your name if you’re not ready to file. Most states let you hold a name for 30-120 days for $10-50. This protects your choice while you prepare paperwork.
Consider your domain availability and social media handles. Your business name should work across all platforms where customers find you.
2. Step 2: Designate a Registered Agent
Every LLC needs a registered agent with a physical street address in its formation state. This person or company receives legal documents, tax notices, and government correspondence during business hours.
You can serve as your own registered agent if you maintain consistent business hours at a physical location. Your home address becomes public record.
Many entrepreneurs hire professional registered agent services ($50-300 annually) to maintain privacy and ensure they never miss important documents.
Registered agents must be available Monday-Friday, 9 AM-5 PM. Missing service of process can result in default judgments against your LLC.
3. Step 3: Determine Management Structure
Member-managed LLCs put all owners in charge of daily operations and legal contracts. This is the default structure and works best when all members actively participate in the business.
Manager-managed LLCs appoint specific members or outside professionals to handle operations. Other members act as passive investors. This structure appears in multi-member LLCs where some owners provide capital but don’t run the business.
Your management structure affects who signs contracts, makes purchasing decisions, and represents the LLC legally. Document this clearly in your operating agreement.
4. Step 4: Prepare an Operating Agreement
An operating agreement outlines member duties, profit distribution, voting rights, and dissolution procedures.
Most states don’t require one, but you need it anyway. This document prevents disputes and protects your LLC status if challenged in court.
Single-member LLCs benefit from operating agreements that prove separation between owner and business. This documentation strengthens your liability protection.
Multi-member agreements should cover capital contributions, percentage ownership, decision-making authority, and buyout procedures.
Include dispute resolution processes. Specify what happens when members disagree on major decisions. Address how members can exit the LLC and transfer their interests.
Many formation services provide free templates, but attorneys can customize agreements for complex situations.
5. Step 5: File Articles of Organization
Articles of Organization (called Certificate of Organization in some states) officially create your LLC. You’ll file with your Secretary of State or equivalent agency. Arizona uses the Corporation Commission. Most states offer online filing.
Required information includes LLC name, principal address, registered agent name and address, management structure, and member/manager names (varies by state). Some states require your business purpose.
Filing fees range from $40 in Kentucky to $500 in Massachusetts. California charges $70 to file plus an $800 annual franchise tax. Processing times vary: some states approve instantly online, while others take 4-10 weeks by mail.
Express processing costs extra ($50-200) but gets approval in 1-5 business days. Check your state’s specific timeline when planning your launch.
6. Step 6: Obtain an EIN and Open a Business Bank Account
An Employer Identification Number (EIN) functions as your LLC’s social security number. Apply for free at IRS.gov in 10 minutes. You’ll need this for hiring employees, opening bank accounts, and filing business tax returns.
Single-member LLCs without employees can use the owner’s SSN for taxes, but getting an EIN protects your personal information and simplifies banking. Banks require either your EIN or articles of organization to open business accounts.
Separate your business and personal finances immediately. Mixing funds destroys your liability protection through “piercing the corporate veil.” Use your business account exclusively for LLC transactions.
7. Step 7: Obtain Licenses and Permits
Federal, state, and local licenses vary by industry and location. You want to research requirements at the SBA’s licensing tool. Most businesses need a general business license from their city or county.
Industry-specific permits include food service licenses, contractor licenses, professional certifications, and zoning permits. Selling products requires a sales tax permit in most states.
Check if you need a DBA (Doing Business As) registration if you operate under a name different from your LLC name.
8. Step 8: Register as a Foreign LLC in Other States
When you operate in states beyond your formation state, you must register as a foreign LLC. This doesn’t mean international—it means out-of-state.
File a Certificate of Authority in each additional state. You’ll need a registered agent in every state where you register. Filing fees typically match domestic LLC formation costs ($100-$300 per state).
Determine if you’re “doing business” by state standards. Occasional sales or remote work usually don’t trigger foreign qualification requirements. Maintaining an office, hiring employees, or regular in-person business activities do.
Benefits and Challenges of Starting an LLC
Key Benefits of LLC Formation
- Liability Protection: Your personal assets stay shielded from lawsuits and business debts. Personal bank accounts, homes, and cars remain protected if the business fails.
- Tax Flexibility: Choose between pass-through taxation or corporate treatment. You avoid double taxation while accessing deductions that sole proprietors can’t claim.
- Professional Credibility: Vendors, customers, and lenders take your business more seriously with LLC status. You’ll qualify for business credit cards and loans more easily.
- Access to Capital: Profit distribution flexibility and enhanced credibility improve your ability to secure funding and partnerships.
Challenges to Consider
- Startup Costs: Formation expenses range from $100 to $1,000 depending on your state and whether you hire formation services.
- Annual Compliance: Ongoing requirements include annual reports ($0-$800 annually), franchise taxes in some states, and maintaining good standing status.
- Record-Keeping Requirements: You must document major decisions, maintain separate finances, and file additional tax forms beyond what sole proprietors handle.
- Complex Dissolution: Closing an LLC involves more paperwork and formal procedures than simply shutting down a sole proprietorship.
Many small business ventures benefit from the LLC structure despite these challenges. The liability protection alone justifies the cost for most entrepreneurs.
State-Specific Guidance
- Filing Fees Vary Significantly: Kentucky offers the lowest fees at $40, while Massachusetts charges $500. California adds an $800 annual franchise tax regardless of revenue.
- Processing Times Differ: States like Wyoming offer 1-day online approvals with expedited options, Delaware processes in 10 days (24 hours expedited), and New York approves online immediately. Most states process online filings in 5-15 business days.
- Annual Report Requirements: Costs range from $0 in Ohio to $800 in California. Some states require reports every year, others every two years. Missing deadlines results in penalties and potential administrative dissolution.
- Franchise Taxes Apply in Some States: California, Delaware, and Texas charge annual franchise taxes unrelated to actual franchises—they’re simply fees for doing business in those states.
Research your state’s specific requirements at your Secretary of State website for exact fees, timelines, and ongoing compliance obligations.
Post-Formation Steps
- File Beneficial Ownership Information (BOI): Foreign entities registered to do business in the U.S. before March 26, 2025, must file BOI reports by April 25, 2025. Those registered on/after March 26, 2025, have 30 days from receiving notice of effective registration. BOI reports identify beneficial owners (25%+ ownership or substantial control) by name, birthdate, address, and ID document details. File for free at FinCEN’s online portal (fincen.gov/boi). No penalties enforced for U.S. persons/companies.
- Register for State Taxes: Complete registration for income tax withholding, sales tax collection, and unemployment insurance if you hire employees. Some states require separate LLC tax registration even for single-member LLCs with no employees.
- Purchase Business Insurance: Get general liability insurance to protect against customer injuries and property damage claims. Professional liability covers service-based businesses. Consider commercial property insurance if you maintain inventory or equipment. Workers’ compensation becomes mandatory when you hire your first employee in most states.
- Maintain Ongoing Compliance: File annual reports on time, pay franchise taxes where required, and keep your registered agent information current. Update your operating agreement when ownership changes. Hold and document annual meetings even if you’re a single-member LLC. This proves you’re treating your LLC as a separate entity, strengthening liability protection if challenged.
Frequently Asked Questions
Should I form an LLC before starting my business?
Yes, if you’re serious about launching and ready to commit. Forming your LLC while evaluating your business concept protects your chosen business name from competitors and establishes liability protection before you sign vendor contracts, lease office space, or accept customer payments.
You can form an LLC with zero revenue and no active operations. The costs stay minimal whether you form now or later, so protecting yourself early makes sense.
Can I create an LLC for free?
No state offers completely free LLC formation, though some low-cost business ideas minimize your expenses. You’ll always pay state filing fees ranging from $40 in Kentucky to $500 in Massachusetts, plus potential registered agent costs ($50-300 annually) and required business licenses.
Formation services advertise “$0 plus state fee,” meaning you still pay the state directly. DIY formation through your Secretary of State website eliminates service fees, but you handle all paperwork yourself.
Do I need a website or bank account immediately?
Open a business bank account within days of formation to establish a clean financial separation between personal and business funds. Mixing finances can destroy your liability protection through “piercing the corporate veil.” A professional website can wait until you’re ready to market your services, but secure your domain name immediately to prevent competitors from registering it first.
How do LLCs work for taxes?
Single-member LLCs report business income on Schedule C attached to your personal Form 1040 return. Multi-member LLCs file Form 1065 partnership returns and issue Schedule K-1 forms to each member showing their share of profits or losses. Members report K-1 income on their personal returns. You can elect S-corp treatment by filing Form 2553 with the IRS, which can save significant self-employment taxes once your business generates steady profits above $60,000 annually.
When should I expand to other states?
Register as a foreign LLC when you establish permanent physical presence, hire resident employees, or conduct substantial recurring business in another state. Occasional remote sales to out-of-state customers, attending conferences, or having occasional client meetings don’t typically trigger foreign registration requirements. Each state defines “doing business” differently, so consult your Secretary of State’s guidance or an attorney when expanding operations.
Conclusion
Forming an LLC protects your personal assets while providing tax benefits and business credibility. You’ll choose a unique name, designate a registered agent, file articles of organization, and obtain necessary licenses. State requirements vary, but the process follows similar steps nationwide.
Plan your formation carefully by researching state-specific fees, understanding BOI reporting requirements, and preparing your operating agreement. The structure you establish now affects your business for years to come.
Starting an LLC creates a solid business foundation that separates your personal life from business risks. Take the first step today.
