Forming an LLC takes five steps: choose a name and registered agent, file Articles of Organization with your state, get an Employer Identification Number from the IRS, draft an operating agreement, and set up your ongoing state filings. State filing fees run from about $35 to $500, and most owners can finish the core paperwork in a single afternoon. The limited liability company remains the most popular structure for new businesses because it pairs personal asset protection with flexible tax treatment, without the formalities a corporation demands.
Step 1: Pick a Name and a Registered Agent
Every state requires your LLC name to be distinguishable from other business entities already on file with the secretary of state. Run a free search on your state’s business registry before you get attached to a name. The name must also include an identifying tag, typically “Limited Liability Company,” “LLC,” or “L.L.C.” Leaving that designator off is one of the most common reasons filings get bounced back.
You’ll also need a registered agent before you file anything. That’s a person or company with a physical street address in the state of formation who agrees to accept legal documents on behalf of your LLC during business hours. A P.O. box won’t work. If your LLC gets sued or receives a tax notice, the registered agent is who gets served. You can serve as your own agent if you have a qualifying address, or you can hire a commercial service, which typically runs $50 to $300 a year. The main reason to pay for the service is reliability: you won’t miss a lawsuit notification because you were traveling.
Decide now how the LLC will be managed. In a member-managed LLC, every owner has a hand in daily decisions and can bind the company to contracts. In a manager-managed LLC, one or more designated individuals run operations while the other members act more like passive investors. This choice goes on your formation documents.
Step 2: File the Articles of Organization
The Articles of Organization, called a Certificate of Formation in some states, is the document that legally creates your LLC. You’ll find the form on your state’s secretary of state website. Most states now allow online filing, which speeds up processing and cuts down on errors.
The form itself is short. You’ll enter the LLC name exactly as confirmed during your name search, the registered agent’s name and street address, a principal office address, and whether the LLC is member-managed or manager-managed. Some states also ask for the organizers’ names, a purpose statement (a general phrase like “any lawful business” is fine in most places), and whether the LLC has an end date or exists indefinitely. Most LLCs choose perpetual duration.
Filing fees vary. Most states charge between $50 and $200, with a few outliers reaching $500. Expedited processing is often available for an added fee if you can’t wait the standard one to two weeks. Review every field before you submit. Misspellings, wrong addresses, and missing registered agent consent are the usual causes of rejection, and resubmission sometimes carries another fee.
Once the state approves your filing, you’ll receive a Certificate of Organization or a stamped copy of your articles. That’s your proof of existence. Keep the original somewhere safe and make copies for your bank and any licensing agencies that ask for it.
Step 3: Get an EIN and Open a Business Bank Account
An Employer Identification Number is a nine-digit federal tax ID, and you need one even if you never plan to hire employees. Banks require it to open a business account, and you’ll use it on every federal tax filing tied to the LLC. The IRS issues EINs for free through its online application, which usually takes about ten minutes and delivers the number on screen once approved.1Internal Revenue Service. Get an Employer Identification Number You can also mail or fax Form SS-4, but there’s rarely a reason to use paper when the online option is instant.2Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) Your EIN is for business tax and reporting only, not a replacement for your personal Social Security number.3Internal Revenue Service. Instructions for Form SS-4, Application for Employer Identification Number (EIN)
With the EIN in hand, open a dedicated business checking account. This step is not optional in any practical sense. Mixing personal and business money is one of the fastest ways to lose the liability protection your LLC provides.
Step 4: Draft an Operating Agreement
The operating agreement is the internal rulebook for your LLC. It covers profit and loss distribution, voting rights, what happens when a member wants to leave, how new members can join, and how the company can be dissolved. Most states don’t require you to file it, and a handful don’t technically require one at all. Skipping it is still a mistake, even for a single-member LLC.
Every state has default LLC rules that apply when no operating agreement exists, and those defaults may not match what you and your co-owners actually agreed to. Many states split profits equally among members regardless of what each person contributed. If one partner put in $200,000 and the other put in $20,000, an equal split probably isn’t what either of them intended. A written agreement overrides the default rules and puts your real deal on paper.
The document also strengthens your liability shield. Courts deciding whether to hold LLC members personally responsible for business debts look at whether the company operated with real structure or functioned as a shell. A signed operating agreement is evidence that the LLC is a legitimate, separate entity. For single-member LLCs this matters even more, because there’s no second owner to confirm that the business was run at arm’s length from your personal affairs.
Step 5: Handle Ongoing State Requirements
Annual or Biennial Reports
Most states require LLCs to file a periodic report, often called an annual report or statement of information. The report confirms basic details like the current business address, the members or managers, and the registered agent on file. Some states require it every year; others use a biennial cycle. Deadlines vary, so check your secretary of state’s website.
Missing these reports has real consequences. States charge late fees, and extended non-compliance leads to administrative dissolution, which revokes your LLC’s good standing. You then lose the legal authority to conduct business and may have to pay back fees and penalties to reinstate the company. Some states also release your business name during dissolution, leaving it open for someone else to register.
State Fees and Franchise Taxes
Many states charge ongoing annual fees or franchise taxes just for the privilege of existing as an LLC. These range from nothing in some states to several hundred dollars a year. A few states impose minimum franchise taxes regardless of whether the LLC earned any revenue. Build these into your first-year budget.
Business Licenses and Permits
Forming an LLC does not automatically give you permission to conduct every kind of business. Depending on your industry and location, you may need a general business license from your city or county, a state-level professional or occupational license, or industry-specific permits. Contractors, food service businesses, healthcare providers, and financial services firms almost always face additional licensing. Contact your local business licensing office and your state’s professional licensing board to confirm what applies to you.
How Your LLC Will Be Taxed
Tax flexibility is one of the LLC’s main advantages, but the default classification catches some new owners off guard. The IRS does not treat an LLC as its own tax category. It assigns a default based on how many members the LLC has.4Internal Revenue Service. LLC Filing as a Corporation or Partnership
- A single-member LLC is treated as a “disregarded entity.” The IRS ignores it for income tax purposes, and all business income and expenses flow through to your personal return on Schedule C, just like a sole proprietorship.
- A multi-member LLC is treated as a partnership. The LLC files an informational return on Form 1065, and each member reports their share of income on a Schedule K-1.
Under either default, members pay self-employment tax on their share of profits. That tax is 15.3%, covering both halves of Social Security (12.4%) and Medicare (2.9%). The Social Security portion applies only up to $184,500 in earnings for 2026; the Medicare portion has no cap.5Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings That 15.3% comes on top of regular income tax, and it’s the biggest tax surprise for first-time owners coming from W-2 wages.
If the default doesn’t fit, you have two options. Filing Form 8832 elects C-corporation taxation, meaning the LLC itself pays corporate income tax and distributions are taxed again as dividends.6Internal Revenue Service. About Form 8832, Entity Classification Election Filing Form 2553 elects S-corporation status, which lets members who actively work in the business take a reasonable salary (subject to employment taxes) and receive remaining profits as distributions that avoid self-employment tax. The Form 2553 deadline is no later than two months and 15 days after the beginning of the tax year you want the election to take effect. Both elections have real tradeoffs and are expensive to unwind. Talk to a tax professional before either one.
Doing Business in Other States
If your LLC operates in states beyond the one where it was formed, you’ll likely need to register as a “foreign LLC” in each additional state. “Foreign” here just means formed elsewhere. Registration typically involves filing an application for authority, submitting a certificate of good standing from your home state, paying a filing fee, and appointing a registered agent in the new state.7U.S. Small Business Administration. Register Your Business
What triggers the requirement varies. Common thresholds include having a physical office or employees in the state, holding frequent in-person client meetings there, or earning a significant share of revenue from customers in that state. Operating without registering can bring fines, block you from enforcing contracts in that state’s courts, and result in back fees for every year you should have been registered. If your business model involves multiple states, factor foreign qualification fees and additional registered agent costs into your budget from the start.
Keep Your Liability Shield Intact
The whole point of forming an LLC is the wall between your personal assets and business debts. That wall is not self-maintaining. Courts can “pierce the veil” and hold members personally liable if the LLC looks like a sham. The most common way owners blow this protection is commingling funds: paying personal bills from the business account, depositing business checks into a personal account, or running all expenses through a single card.
Courts also look at whether the LLC was adequately funded at the start, whether it maintained basic formalities like an operating agreement and separate records, and whether it was used to commit fraud. No single misstep guarantees personal liability, but sloppy records combined with mixed finances give creditors a strong argument.
The practical habits are simple. Keep a dedicated business bank account. Never use it for personal expenses. Maintain your operating agreement and meeting records. Carry adequate insurance for your operations. These steps cost almost nothing and preserve the protection you formed the LLC to get.
What About the FinCEN Beneficial Ownership Report
Older formation guides mention a federal Beneficial Ownership Information report required under the Corporate Transparency Act. As of March 2025, FinCEN issued an interim final rule removing that requirement for all companies formed in the United States. Domestic LLCs and their beneficial owners are now exempt from BOI reporting to FinCEN.8Financial Crimes Enforcement Network. FinCEN Removes Beneficial Ownership Reporting Requirements for US Companies and US Persons The reporting rule now applies only to entities formed under foreign law that have registered to do business in a U.S. state. If your LLC is formed domestically, cross this item off your list.
Late Filing Penalties to Calendar Now
Missing federal tax deadlines gets expensive fast, and the penalties depend on how the LLC is classified. For LLCs taxed as partnerships or S-corporations, the IRS charges a base penalty of $255 per member per month, up to 12 months, for returns due after December 31, 2025. A four-member LLC that files three months late owes $3,060 in penalties alone, before any tax owed on the return itself.9Internal Revenue Service. Failure to File Penalty
For single-member LLCs reporting on Form 1040, and LLCs taxed as corporations filing Form 1120, the failure-to-file penalty is 5% of the unpaid tax for each month the return is late, up to 25%. If the return is more than 60 days late, the minimum penalty is $525 or 100% of the unpaid tax, whichever is less.9Internal Revenue Service. Failure to File Penalty State penalties for late annual reports or franchise tax filings stack on top. Put every deadline on a calendar the day your LLC is approved.