Yes, a person with a felony conviction can start an LLC in any U.S. state. No state asks about criminal history on the formation paperwork, and no Secretary of State runs a background check before approving the filing. The barriers for someone with a record show up after the LLC exists: occupational licensing boards, federal contracting rules, a handful of federally restricted industries, and bank onboarding policies. Form the entity, then plan around those.
Formation Itself Has No Criminal-History Screen
When you file Articles of Organization (called a Certificate of Formation in some states) with your state’s Secretary of State, the office checks that the paperwork is complete, that the company name is distinguishable from others on file, and that you paid the fee. That is the entire gatekeeping function. There is no character requirement and no disclosure of past convictions.
The model statute most states follow, the Revised Uniform Limited Liability Company Act, does not restrict membership or management based on criminal history. A person becomes a member “as agreed” by the parties.1Bureau of Indian Affairs. Uniform Limited Liability Company Act (2006) The IRS likewise notes that most states place no restrictions on LLC ownership and that members can include individuals, corporations, other LLCs, and foreign entities.2Internal Revenue Service. Limited Liability Company (LLC)
The formation document asks for a company name that includes “LLC” or “Limited Liability Company,” a principal office address, a registered agent with a physical address in the state, and whether the LLC will be member-managed or manager-managed. None of those fields touch your record.
After the state approves the LLC, you apply to the IRS for an Employer Identification Number. The online application is free and returns the number immediately.3Internal Revenue Service. Get an Employer Identification Number It asks for the name and taxpayer identification number of the “responsible party,” but not about criminal history.
So the entity exists. The harder question is what the entity is allowed to do.
Occupational Licensing Is the Real Barrier
For many people with felony records, the obstacle is not forming the LLC but obtaining the professional or industry license the business needs to generate revenue. A legally recognized LLC does not help if the work it would do requires a permit you cannot get.
Licensing boards in insurance, real estate, financial services, healthcare, and alcohol or cannabis sales routinely run criminal background checks before issuing a permit. Convictions involving fraud, theft, or embezzlement are particularly likely to trigger denial in financial industries. In gaming, a felony conviction can bar you from holding any ownership interest in a licensed facility.
How closely a board looks depends on the industry and on whether your conviction connects to the work. A fraud conviction creates obvious problems for a securities license, while the same conviction may be largely irrelevant to a landscaping business that only needs a general contractor permit. Before you spend money on formation, confirm two things: whether your specific industry requires a license, and whether your record would disqualify you from obtaining one. Many states offer a preliminary determination process that lets you ask the licensing board before investing in education, training, or filing fees.
States That Have Narrowed What Boards Can Consider
Roughly 19 states now prevent licensing agencies from relying on vague standards like “moral turpitude” or “good moral character” when denying a license. In those states, a board has to show that the specific conviction directly relates to the duties of the occupation. Several other states have removed character requirements from many of their individual license types without passing a blanket ban.
Many states also impose time limits. A common structure allows denial based on a felony only if the conviction occurred within the past five to ten years, with violent and sexual offenses subject to longer or permanent disqualification periods. After the waiting period, the conviction can only be considered if it directly relates to the occupation and the applicant has not demonstrated sufficient rehabilitation.
If a Board Denies the License
You generally have the right to appeal or request a hearing, and the appeal is where evidence of rehabilitation does its work. Boards commonly accept:
- Proof that you finished probation, parole, or any court-ordered program.
- A steady employment history since the conviction.
- Certificates, degrees, or vocational training completed after the conviction.
- Character references from employers, community members, or parole officers.
- A crime-free record since the conviction. In some states, five years without a new conviction creates a legal presumption of rehabilitation.
Some states issue certificates of rehabilitation or certificates of relief that carry an enforceable presumption in your favor during licensing. Check whether your state offers one before you apply.
Businesses Federal Law Puts Out of Reach
A few business types are closed to people with felony convictions regardless of what state the LLC is formed in, because federal law imposes the restriction on the person.
Firearms dealing is the clearest example. Under the Gun Control Act, anyone convicted of a crime punishable by more than one year of imprisonment is prohibited from possessing firearms or ammunition.4Bureau of Alcohol, Tobacco, Firearms and Explosives. Identify Prohibited Persons Since you cannot lawfully possess the inventory, the ATF will deny a Federal Firearms License application. Forming an LLC does not create a workaround; the prohibition attaches to you, not to the entity.
Banks and insurance companies generally cannot be formed as LLCs, and federal regulators in those industries conduct extensive background checks.2Internal Revenue Service. Limited Liability Company (LLC) Money services businesses, including check cashing, money transmission, and currency exchange, face federal registration requirements and anti-money laundering obligations that bring owner backgrounds into scope.
Federal Contracting and SAM.gov
If your LLC plans to bid on federal contracts, the record becomes directly relevant. The Federal Acquisition Regulation lets contracting officials debar a contractor for convictions involving fraud in connection with a government contract, antitrust violations, embezzlement, theft, bribery, false statements, or tax evasion. It also allows debarment for any offense indicating a “lack of business integrity or business honesty” that bears on present responsibility.5Acquisition.gov. Subpart 9.4 – Debarment, Suspension, and Ineligibility
To bid, the LLC must register in the System for Award Management at SAM.gov. The registration asks whether the entity or any of its principals has been convicted of offenses like fraud, embezzlement, bribery, or tax evasion in connection with a public contract within the past three years, and whether the entity has been convicted of any federal felony within the past 24 months.6U.S. General Services Administration. Entity Registration Checklist A “yes” answer is not automatic disqualification, but it triggers further review. False answers are themselves grounds for debarment and potential criminal prosecution.
Banking and SBA Financing
No federal law flatly bars someone with a felony from opening a business bank account, but banks run their own due diligence when onboarding new business customers. A conviction for fraud, identity theft, or money laundering may cause a bank to decline. That is the bank’s decision, not a legal rule, so if one bank turns you down, another may approve you. Bring the Certificate of Formation, the EIN confirmation letter, and personal identification, and try more than one institution if you need to.
Small Business Administration loan programs generally disqualify a business if a principal is currently incarcerated, on probation or parole for a felony, or under indictment. Once the sentence and supervision are fully complete, SBA eligibility opens up, though individual lenders still run their own background reviews and may apply stricter internal policies. A community bank or credit union, approached with candor about your history, is often a better starting point than a large national bank.
A Note on Beneficial Ownership Reporting
The Corporate Transparency Act created a federal requirement for most LLCs to report their beneficial owners, meaning anyone who owns at least 25 percent of the company or exercises substantial control, to the Financial Crimes Enforcement Network. The report asks for each owner’s name, date of birth, address, and an identifying document number such as a driver’s license or passport.7Federal Register. Privacy Act of 1974 – System of Records It does not ask about criminal history.
The requirement’s status is unsettled. In March 2025, FinCEN issued an interim final rule exempting all domestic reporting companies, including LLCs formed in any U.S. state, from filing beneficial ownership reports.8Federal Register. Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension FinCEN has stated it intends to issue a final rule that could reinstate or modify the requirement. Check FinCEN’s website near the time you form the LLC. If the requirement applies and you willfully fail to comply, penalties reach $10,000 and two years of imprisonment.9Office of the Law Revision Counsel. 31 U.S. Code 5336 – Beneficial Ownership Information Reporting Requirements
A Workable Sequence
If you have a felony record and want to start an LLC, the order of operations matters more than the formation itself.
- Check licensing first. Before spending anything on formation, confirm whether the business you plan to run requires a professional or occupational license, and whether your conviction would disqualify you. Use the preliminary determination process if your state offers one.
- File the Articles of Organization with the Secretary of State, online or by mail, with the filing fee.
- Apply for the EIN at IRS.gov. It is free and immediate.3Internal Revenue Service. Get an Employer Identification Number
- Open a business bank account. Bring the Certificate of Formation, EIN letter, and ID. If the first bank declines, try another.
- Draft an operating agreement, even if your state does not require one. For a multi-member LLC, consider provisions that address what happens if a member is convicted of a crime after formation, such as a mandatory buyout or removal by vote.
- Calendar annual report and franchise tax deadlines so the LLC stays in good standing. Administrative dissolution strips the liability protection you formed the entity to get.
A felony record closes some doors, especially in heavily regulated industries and federal contracting. The door to forming an LLC and running a lawful business is not one of them.