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How to Start an LLC

Our Complete Guide on How to Form an LLC in Any State (Plus Answers to FAQ)

Check Out Our Free LLC Formation Guide Below

Everything you need to know to get your LLC formed can be found in the guide below along with a few extra resources, tips, and suggestions for getting your entity up and running smoothly.

how to start an llc

Our List of Top Professional LLC Formation Services

Even if you know what to do, LLC formation can be overwhelming.  Here is a list of our favorite services who can reliably and affordably form your LLC for you:

Starts at $49 + state fees (Registered Agent service FREE for first year with LLC formation plan)

Starts at $100 + state fees (same day filings and excellent privacy features)

Starts at $49 + state fees (offers many more legal services)

Choose Your State

Each state has the power to create legal entities that are separate and distinct from their owners.  So when it comes to forming an LLC, one of the first considerations is which state you should form in.

Some states have more business friendly laws than others.  Delaware, Nevada, and Wyoming, for example, are known for being particularly business friendly – which makes them popular choices for LLC formation.

In most instances, however, it probably makes the most sense for you to form your LLC in your home state.  You will more than likely be required to register your business in your home state anyways, which comes at an extra cost and administrative burden.

At the end of the day, it comes down to what you think is going to best protect your assets and help you achieve your goals.  If you have a big operation (or plan on your business growing huge someday), the extra protection that comes from forming a state with business-friendly laws might be well worth the cost.  If you're unsure about which state is best to start your LLC, you should consult an attorney or a CPA who has experience with the subject matter.

Forming an LLC - Overview

No matter whether you’re a small business owner or an investor, a Limited Liability Company (LLC) offers a nice array of protections and flexibilities to help you reach your goals.

The LLC business structure has become an extremely popular choice for many business owners and investors despite being a relatively new development.  Wyoming was the first state to offer an LLC business structure in 1977, and many states didn’t join in offering this structure until the 1990’s.

As complicated as it might sound, starting an LLC actually isn’t too difficult.  Here we’ve written out all of the steps you need to know as well as other things you should consider in the process of forming your entity.

Each State has its own process with some nuances, but for the most part the high level procedure for forming an LLC is the same in each state.  The process goes something like this after you have chosen which state you wish to form in:

  1. Choose a Name for Your LLC
  2. Choose a Registered Agent
  3. File Your Formation Document (often known as Articles of Organization or a Certificate of Formation)
  4. Create an LLC Operating Agreement
  5. Acquire an EIN with the IRS
  6. Set Up Finances (bank accounts, accounting procedures, acquire insurance, etc.)
  7. Get Licenses and Permits, if applicable
  8. Start Building Your Prosperous Business!

All of this is doable on your own!  If you don't want to worry about steps 1 through 7 above though, many business owners opt to hire an LLC formation service which will take care of all of the paperwork and also serve as your registered agent.

Our Favorite LLC Formation Services

FREE first year of Registered Agent Service

With purchase of LLC Formation Plans which start at $49 + state fees

Same day filings and excellent service

LLC Formation Plans start at $100 + state fees

Why Are LLC's So Popular?

LLC’s have become so popular for a few different reasons.  First, as the name suggests, they offer the benefit of limited liability.  Without going into too much detail, this means that owners are protected from personal liability for business debts and claims.

Second, an LLC offers the benefit of pass-through taxation.  This means that profit, losses, or other tax liabilities are passed through to the owner’s personal tax return.  As such, Limited Liability Companies avoid the double taxation that Corporations have to deal with.

The third main reason that they are popular has to do with the flexibility of the legal structure.  With an LLC it’s much easier to set up the entity, maintain it, and change ownership if you ever need to do that.  On top of that, there is flexibility in how owners choose to distribute profits.

Naming Your LLC

Since your new entity is going to be a distinct legal entity, it has to have its own name so it can be easily identified.

Most of the LLC’s I form personally are investment vehicles, so the name of the entity isn’t really going to ever be in front of a consumer.  Because of this, I typically don’t overthink the naming process and just use names that are memorable or names that I like how they sound.

On the other hand, if your business is consumer facing or your branding is more central to the business, it might be a good idea to be a little more intentional about the name you choose.

No matter which way you go about it, here are a few things you should keep in mind when you are brainstorming names:

  •  Your business name must be unique to the state you’re forming in.  In other words, it’s ok to have the same name as a business in another state.  But if the name is already taken in the state you’re forming in, you can’t also use it (Incfile has a business name search tool to check for name availability in a given state).
  • The name must have the term “LLC”, “L.L.C.”, or “Limited Liability Company” at the end of the name.
  • Most states require additional paperwork for names that are common for financial or higher education institutions.  That means words like “Bank”, “Credit Union”, “Insurance”, “College”, “University”, and other similar words are likely to require an extra step of paperwork and approval from the state.
  • You can’t use a name that could confuse your LLC with a federal entity.  Sorry, but you can’t name your business “Internal Revenue Service, LLC”.

Choosing a Registered Agent For Your LLC

The next thing you need to consider before filing with the state is to pick a registered agent.

A registered agent is an individual (you can choose to be the registered agent yourself) or a business that is designated to receive service of due process for your business if it ever becomes a party in a legal action.  

In other words, most states require that you officially designate a person or business who can accept court summons and other legal documents on behalf of the entity.

Some states refer to a registered agent by different names, so if you read any of the following terms they are most likely referring to a registered agent:

  • Statutory agent
  • Resident agent
  • Agent for service of process

Be Your Own Registered Agent or Use a Service?

One of the decisions you should consider when forming your LLC is whether you want to be your own registered agent or if you want to use a service to be your agent for you.

You can designate yourself, a business partner, or somebody else you trust to be your LLC’s registered agent for convenience, as long as you or the person:

  • Has a physical address in the state of formation, and
  • Is 18 years of age or older, and
  • Is physically available during normal business hours
Alternatively, you can hire a registered agent service to be your LLC’s registered agent.  It comes at an extra cost, but there are affordable and reputable services out there who will do it for you and ensure that you are remaining compliant.  

Using a service also adds an extra layer of privacy to your operation, as any registered agent’s address becomes part of public record.  Personally, I like to use services for this exact reason and I find the extra cost well worth the privacy.

FREE first year of Registered Agent Service

With purchase of LLC Formation Plans which start at $49 + state fees

Same day filings and excellent service

LLC Formation Plans start at $100 + state fees

Filing Your Paperwork With the State

Once you’ve settled on your LLC’s state of formation, name, and registered agent, you can take the next steps to make it official.

Each state has a required formation document that must be filed with the Secretary of State.  In most states, this is either called a Certificate of Formation, Certificate of Organization, or Articles of Organization.

You can find a Certificate of Formation template on your state’s Secretary of State website.

After you submit your paperwork with the state along with your filing fee, the LLC will be official as soon as they file and approve it!  This process typically doesn’t take very long – most states will have it done within 1-4 business days. 

Congrats on Forming Your LLC!  Now What?

Getting your LLC formed is undoubtedly a nice milestone!  But as any business owner or investor knows, the work hardly stops there.  

No matter what your goals or intentions are with your new LLC, there are a few more things you should consider now that your entity is official.

Draft an Operating Agreement

An LLC operating agreement creates guidelines and provisions for your entity.  Some states actually require that you have an operating agreement, and some only require one if you have more than 1 member in your LLC.

No matter whether it’s required or not, an LLC operating agreement is a good idea.  Especially if you have a business partner or multiple members in your LLC, the operating agreement will become a binding contract between members that can:

  • State the intent and business purpose of the entity
  • Decide how the LLC will be taxed (taxed as a partnership by default if there is more than one member)
  • Decide management structure
  • State member obligations and investments
  • Govern sharing of profits
Any time you are dealing with business matters, it’s a good idea to get it in writing, and the operating agreement is the way to do it.

Acquire an Employer Identification Number (EIN)

All of the above paperwork and filing is done with your state of incorporation.  The EIN is a federally issued number that identifies your entity with the Internal Revenue Service (IRS).

You’ll definitely need an EIN if you hire employees, and you’ll also need one to open a business bank account.  EIN’s come in handy in the course of dealing with other businesses too.  For example, Amazon and other affiliate networks I use in my businesses use my EIN to verify my business and issue 1099 tax forms to me at the end of every year.

Getting an EIN is free and really easy to do on your own.  All you have to do is go to the IRS website and complete their identification forms online.  You can also acquire one via mail, or you can hire a service to get one for you.

A lot of business formation services will also get you an EIN for free as part of an entity set up package.

Set Up a Business Bank Account

Back in the day, it used to be pretty difficult to find a business bank that offered a reasonable amount of features that was reasonably priced.

In recent years, the business banking scene has become much more accessible.  Nowadays I almost exclusively bank with Azlo for my businesses.  They have a great service, ZERO account fees, and offer all of the essentials you need in a business bank.

Of course, most of my investments are in online businesses, so a more bare bones banking relationship is all I need to be in good shape.

If your business is a little more capital intensive, or you plan to send and receive lots of wires, or if you want a bank that can help with financing products like working capital lines of credit, it may be a better idea for you to go to a local or national bank.

Either way, it’s a good idea to set up a business bank account to collect and make payments and also to keep all of your business’ assets together.

Apply for a Business Credit Card

Even if you don’t think you need a credit card, applying for one can have a few benefits for your business.

In addition to helping your cash flow at first, it’s also generally a good idea to start building a credit profile for your business.  That way when your operation gets bigger, your LLC will be able to get approved for bigger credit lines.

A business card is also a great way to rack up some credit card points that you can use to take a vacation, get yourself something nice, or just to offset some expenses.

American Express offers some great entry level credit cards that don’t have an annual fee.  Most major banks and then Visa and MasterCard also offer business credit cards to get you started.

Get Your Accounting and Taxes Organized

An accounting system like Quickbooks is almost essential to keep track of your business income and expenses.  You can get away with using a spreadsheet if your operations are relatively simple and you stay on top of your finances.

Depending on the type of business you are running, there might be a few other tax related things you need to take care of.

If you sell physical products (this includes business models like dropshipping), you’ll probably need to apply for a sales and use tax resale certificate.

Employees bring on more registration forms too.  If you plan to hire people to work for your business, you will probably need to register for unemployment and withholding taxes.

Many states also have franchise taxes, which either tax gross receipts or net income over a certain threshold.

A good CPA is a huge asset and can help to greatly reduce or eliminate the administrative burden for all of your tax and accounting obligations.

Business Insurance for Your LLC

Depending on the nature of your business, some form of insurance might be required.  For example, if you have employees some form of workers compensation insurance is required in almost every state.

Even if it’s not required though, general liability insurance for your business is probably a good idea.  This type of insurance, as the name suggests, covers a wide variety of liabilities that could arise in the course of doing business.

The last thing you need is some form of legal liability or a lawsuit draining your assets because you aren’t covered.  All it takes is one bad lawsuit to shut an entire operation down.

General liability insurance is relatively inexpensive and very much worth looking into no matter what type of business you are running.  If your LLC was created purely to invest passively, then insurance might not be necessary.

Time to Get Started!

Time to choose your state and get started with your LLC formation!