What an LLC is and why you might form one

An LLC, or limited liability company, is a business structure that separates your personal assets from your business assets. If your LLC is sued or owes money, creditors generally cannot go after your personal bank account, house, or car — they can only pursue what the business owns. This protection is called limited liability, and it is the main reason people choose an LLC over operating as a sole proprietor.

An LLC also gives you flexibility on taxes. By default, the IRS treats a single-member LLC as a sole proprietorship and a multi-member LLC as a partnership — meaning the business itself does not pay income tax, but you report the profits on your personal return. You can also elect to have your LLC taxed as a corporation if that saves you money, though this is less common for small businesses.

You do not need an LLC to start a business. Many people operate as sole proprietors or partnerships without one. But if you want liability protection, plan to hire employees, or want to appear more established to customers and lenders, an LLC is usually the simplest choice.

Key Takeaways

  • You form an LLC by filing Articles of Organization with your state's Secretary of State office, which costs between $50 and $500 depending on the state.
  • You choose a business name, check that it is available in your state, and reserve it before filing if you want to be certain no one else takes it.
  • After filing, you obtain an Employer Identification Number (EIN) from the IRS for free, which you need to open a business bank account and hire employees.
  • You should create an operating agreement that describes how the LLC will be run, even if you are the only member, because it protects your liability protection in court.
  • The entire process typically takes one to four weeks from start to finish, depending on your state and whether you pay for expedited processing.

Choosing and reserving your business name

Your LLC name must include the words "Limited Liability Company" or an abbreviation like "LLC" at the end. Most states also require the name to be distinguishable from other business names already registered in that state — meaning you cannot use a name that is identical or confusingly similar to an existing LLC, corporation, or partnership.

Before you file, search your state's Secretary of State website to see if the name you want is available. Every state has a free online database where you can look up registered business names. If the name is taken, you will need to choose a different one. If it is available, you can either file when ready or pay a small fee (usually $10 to $30) to reserve the name for 30 to 120 days while you prepare your other documents.

Name reservation is optional but useful if you are not ready to file yet or want to make sure no one else grabs the name while you are gathering information. Once you file your Articles of Organization, the name is protected automatically.

Filing Articles of Organization with your state

The Articles of Organization is the main document you file with your state to create the LLC. It is a short form — usually one to two pages — that asks for your business name, the state where you are forming the LLC, your registered agent (the person or company authorized to receive legal documents on behalf of the LLC), and the names and addresses of the members (owners).

You file this document with your state's Secretary of State office. Most states now accept filings online through their website, which is faster and cheaper than mailing a paper form. The filing fee ranges from $50 in states like Wyoming to $500 in states like California. Some states charge extra for expedited processing, which can cut the approval time from two weeks to one or two business days.

Your registered agent can be you, another person, or a registered agent service (a company that holds the address for you). Using a registered agent service costs $50 to $300 per year but keeps your personal address off public records. Once your Articles are approved, you will receive a confirmation document, often called a Certificate of Formation or Certificate of Organization.

Obtaining an Employer Identification Number from the IRS

An Employer Identification Number (EIN) is a nine-digit number the IRS uses to identify your business for tax purposes. You need an EIN to open a business bank account, hire employees, and file business tax returns. The good news is that getting one is free and usually takes only a few minutes.

You can obtain an EIN online through the IRS website (irs.gov) by filling out Form SS-4. The online process is the fastest route — you receive your EIN when ready and can start using it the same day. You can also explore by phone, fax, or mail, but those methods take longer. If you are a single-member LLC and do not plan to hire employees, you can use your Social Security number instead of an EIN, but most people get an EIN anyway to keep their business and personal finances separate.

Keep your EIN confirmation letter in a safe place. You will need to reference it when opening your business bank account and filing taxes.

Creating an operating agreement

An operating agreement is an internal document that describes how your LLC will be managed, how profits and losses are split among members, what happens if a member leaves or dies, and how decisions are made. It is not filed with the state, and it is not required by law in most states — but you should create one anyway.

Here is why: if you ever end up in court and someone claims the LLC is just a personal business in disguise, the operating agreement is your strongest proof that you treated it as a separate entity. Without one, a judge may "pierce the corporate veil" and hold you personally liable for the LLC's debts. This is rare, but it happens, and an operating agreement is cheap insurance against it.

For a single-member LLC, you can use a straightforward one-page template that you write yourself or read from your state's Secretary of State website or a legal template site. For a multi-member LLC, it is worth spending $100 to $300 to have a lawyer review it, because disputes between members are common and a clear agreement prevents costly litigation later. You and all members should sign and date the agreement and keep a copy in your LLC records.

Opening a business bank account

Once you have your EIN and your Certificate of Formation, you can open a business bank account. Bring your EIN confirmation letter, your Certificate of Formation, a photo ID, and your Social Security number to your bank. Some banks also ask for your operating agreement, though it is not always required.

A business bank account keeps your LLC's money separate from your personal money, which is essential for liability protection and makes taxes much simpler. If you mix personal and business funds, a court may decide the LLC is not a real separate entity and hold you personally liable for business debts. Opening an account takes about 30 minutes and usually costs nothing, though some banks charge a monthly fee ($10 to $30) for business accounts.

Use this account for all business income and expenses. Pay yourself a salary or distribution from the account, and keep personal expenses out of it.

Ongoing requirements and annual filings

After you form your LLC, most states require you to file an annual report or renewal form to keep the LLC active. This is usually a straightforward one-page form that confirms your business address and registered agent, and it costs $0 to $150 depending on the state. If you miss the important date, your LLC may be dissolved, and you lose liability protection.

You also need to pay any annual state fees or franchise taxes your state requires. Some states charge nothing; others charge $50 to $800 per year. Check your state's Secretary of State website for the specific requirements and important date for your state.

Additionally, you must keep records of LLC meetings, member decisions, and financial transactions. You do not need to hold formal meetings if you are the only member, but you should document major decisions in writing. This record-keeping protects your liability protection if you are ever sued.

Frequently Asked Questions

How long does it take to form an LLC?

Standard processing usually takes one to four weeks, depending on your state and how busy the Secretary of State office is. If you pay for expedited processing, you can get approval in one to three business days. You can start using your business name and opening a bank account as soon as you receive your Certificate of Formation.

Can I form an LLC in a different state than where I live?

Yes. Some people form LLCs in states like Delaware or Wyoming because those states have lower fees or more favorable tax laws. However, if you operate your business in your home state, you will also need to register as a foreign LLC in that state, which costs extra and adds complexity. For most small businesses, forming in your home state is simpler and cheaper.

Do I need a lawyer to form an LLC?

No. The filing process is straightforward enough that most people do it themselves using their state's online filing system and free templates. A lawyer is helpful if you have multiple members, complex ownership structures, or significant assets, but for a straightforward single-member LLC, you can handle it on your own.

What is the difference between an LLC and a corporation?

Both offer liability protection, but corporations have more formal requirements, higher filing fees, and more complex tax rules. LLCs are simpler to run and cheaper to maintain, which is why they are more popular for small businesses. Corporations are better if you plan to raise investment capital or go public.

Can I change my LLC name after I form it?

Yes. You file an amendment to your Articles of Organization with your state, which usually costs $10 to $50 and takes one to two weeks. You will also need to update your business licenses, bank account, and any contracts that reference the old name.