How to start an LLC in 6 steps + post-startup checklist

Key takeaways

• Forming an LLC protects owners’ personal assets from business debts and legal issues. This structure also offers tax advantages through pass-through taxation that simplifies financial management.
• Successfully establishing an LLC involves several steps, such as selecting a registered agent, filing articles of organization, and obtaining an EIN. Thorough attention to these processes ensures legal compliance and sets a solid foundation for business operations.
• Beyond the initial setup, maintaining LLC compliance and exploring different LLC types are important for long-term success. Understanding various structures, like the Series LLC or PLLC, allows businesses to adapt to specific needs and optimize their operational structure.

In recent years, we’ve seen rapid growth in small businesses in the U.S. According to the Small Business Administration’s (SBA) 2024 Small Business Profile, there are currently 34.8 million small businesses in the country.

If you’re considering joining the small business trend, then you should know that forming a Limited Liability Company (LLC) is a suitable choice for entrepreneurs like you.

In this article, we’ll break down the basics of an LLC, explaining what it is and how it works. We’ll also guide you through the steps on how to start an LLC and introduce you to the various types available.

How to start an LLC

An LLC is a business structure that protects owners from being personally liable for losses, business debts, or lawsuits. Unlike sole proprietorships, which combine personal and business assets, an LLC protects members’ personal assets from business liabilities.

LLCs also provide business owners with other benefits, such as pass-through taxation. Different from corporations, where members experience double taxation, in an LLC, the company isn’t taxed at the business level. Instead, owners report the business’ income or losses on their personal income tax returns.

It’s generally easy to set up an LLC. Follow this guide to help you get started:

Step 1: Choose a business name

Make sure your LLC’s name is unique and distinct from other businesses. Each state has its own guidelines regarding business names, including prohibitions on certain words and requirements for the inclusion of “LLC” or similar designations.

It’s important that you conduct a thorough search to ensure your chosen name isn’t already in use or very similar to an existing business. This information is usually available on your state’s business filing agency website.

Step 2: Select a registered agent

Registered agents receive official legal documents on behalf of your LLC. They ensure compliance as they correspond with you promptly regarding lawsuit notices, state filings, tax forms, and others.

Choose a registered agent that’s authorized to conduct business and has a physical address within your state. Other than that, consider these criteria to help you find a registered agent for your LLC:

• Availability. The registered agent should be available during standard business hours to receive legal documents. Consistent availability ensures they don’t miss any important communications.
• Experience and reliability. Look for an agent with experience in handling legal documents. Make sure they manage paperwork efficiently and notify you right away of any documents they receive.
• Privacy and confidentiality. Registered agents handle sensitive information. Do background checks on agents you’re considering to ensure they’re trustworthy and committed to maintaining confidentiality.
• Organizational skills. An effective registered agent should be able to manage and keep track of various legal documents and deadlines.
• Professionalism. Your agent will be a direct point of contact with a state agency on your behalf, so choose one who maintains a high level of professionalism.
• Additional services. Some registered agents offer additional services like compliance alerts. They also help with filing annual reports or assist with legal and tax notices. Depending on your needs, these extra services can be beneficial.
• Cost. Evaluate their service fees against the benefits they provide to determine whether they’re reasonable or not.
• Reputation. Check reviews or ask for referrals when looking for a registered agent. Prioritize an agent with a good reputation to guarantee quality service.
• National coverage. If you plan to operate your LLC in multiple states, consider an agent with a national presence. They can provide registered agent services in all states where you operate.

Step 3: Decide on a management structure

You can structure your LLC in two ways: member-managed or manager-managed. Decide which management structure you think can help your LLC achieve efficient operations.

In a member-managed LLC, all members actively participate in daily operations and decision-making, making it suitable for small businesses where owners prefer a hands-on approach. This structure empowers each member with direct control over the company.

Alternatively, a manager-managed LLC designates one or more individuals, who may or may not be members, to handle daily operations and decisions. This structure is ideal when not all members wish to be actively involved, or the LLC is larger and requires specialized management.

Step 4: Create an LLC operating agreement

An operating agreement consists of the management structure and operational guidelines the LLC has to follow. Although it’s not always legally required in most states, LLCs can benefit from an operating agreement for various reasons.

For example, this document can include guidelines on profits and losses distribution, member responsibilities, and procedures for adding or removing members. It also helps settle internal disputes or misunderstandings.

An operating agreement typically consists of the following:

• Member information. These are details about each member, including their names and addresses.
• Ownership structure. This is the division of ownership among members, typically expressed as percentages or units.
• Capital contributions. This is the value of money, property, services, or other assets each member contributed to the LLC.
• Profit and loss distribution. This is the method for dispensing profits and losses among members.
• Voting rights and responsibilities. Describes how the LLC conducts votes on business decisions, including the minimum attendees in a meeting and the percentage of votes needed for approval.
• Meetings and record-keeping. Outlines meeting guidelines and record-keeping requirements.
• Rules for adding or removing members. Details the procedures for accepting new members, transferring ownership shares, and handling member withdrawals.
• Dissolution terms. Specifies the conditions for dissolving the LLC and the process for settling its affairs.
• Amendment process. Describes the procedure for amending the Operating Agreement.
• Buy-sell/succession rules. Explains the procedures for members selling their interests and addresses scenarios involving member incapacity or death.
• Dispute resolution. Drafts the procedures for resolving disputes among members or with management.
• Signatures. Requires all members to sign the operating agreement for it to be effective.

Step 5: File the articles of organization

Your LLC’s articles of organization are legal documents that officially establish your business in your state. They outline the basic structure and operational parameters of your company.

Articles of organization are important for several reasons. Firstly, they formally create your LLC as a distinct legal entity, separate from its owners.

Secondly, the articles also define the relationships between the LLC and its members, including their rights, responsibilities, and obligations. Finally, they serve as a public record of your LLC’s existence and key information.

While many states provide straightforward filing processes, some individuals seek legal assistance when filing their articles of organization. Employ an attorney to ensure your compliance with all applicable regulations and guide you with legal and tax advice related to your business.

The general process of filing articles of organization in the U.S. generally involves these steps:

Step 1: Research your state’s requirements

Each state has its own specific forms, filing fees, and regulations. Consult your Secretary of State’s website for the most accurate and up-to-date information.

Step 2: Gather the necessary information

You’ll need to provide information about your LLC, including the ones listed below:

• LLC name and principal place of business. This is the LLC’s official name as registered with the state and its primary business location.
• LLC duration. This is the LLC’s lifespan, specifying whether it’s perpetual or for a defined term.
• LLC purpose. This is a concise description of the LLC’s intended business activities.

Step 3: Complete the forms

Most states provide fill-in-the-blank forms, whether online or physical, for articles of organization. Complete all required sections accurately.

Step 4: File the articles and pay the fee

Submit your completed forms and the required filing fee to your state agency, usually the Secretary of State’s office. Some states allow online filing, while others require physical submission.

Step 5: Receive confirmation

Once the state approves your filing, they typically issue a certificate or confirmation acknowledging your LLC as an official business entity.

Step 6: Secure an Employer Identification Number (EIN)

An EIN is a unique series of numbers the Internal Revenue Service (IRS) assigns to companies or businesses operating in the U.S.

The EIN is used for various business functions like employee recruitment, business bank account setups, and federal tax purposes. To obtain an EIN, you may use the IRS’ free service and apply online through their website. You may also go for alternative application methods like mailing or faxing your application to them.

Follow this guide to apply for an EIN online:

Step 1: Determine eligibility

• Ensure that your principal business is in the U.S. or U.S. Territories.
• Confirm if you have a valid Taxpayer Identification Number (SSN, ITIN, EIN).

Step 2: Visit the IRS Website

Go to the IRS EIN online application page. The EIN online application is available from Mondays to Fridays, 7 a.m. to 10 p.m. Eastern Time.

Step 3: Begin the application

• Review the guidelines provided by the IRS thoroughly before beginning.
• Select Begin Application to start the application process.

Step 4: Fill out the application

Follow the prompts and provide the required information, including:

• The type of EIN you are applying for (Individual/Sole Proprietor, Corporation, Partnership, Trust, Estate, etc.)
• Personal and business information such as name, Social Security Number, address, and type of business

Step 5: Submit the application

• After filling out the necessary information, review your application.
• When submitting your application, stay on the page and avoid refreshing to prevent application errors.

Step 6: Receive your EIN

• After submitting, your application will be processed, and you’ll be issued an EIN immediately.
• Then, you can download, save, and print your EIN confirmation notice.

Important tips:

• The individual applying should be the owner or a responsible party of the business.
• EIN applications are limited to one per responsible party per day.
• The online application process is the fastest way to receive your EIN.

Post-startup checklist after starting an LLC

After establishing your LLC, consider taking these strategic steps to ensure your business operates smoothly and complies with all legal requirements:

Open a business bank account

Establishing separate financial means for your business protects your personal finances from business liabilities. It also establishes your credibility in the marketplace and allows you to manage business finances efficiently.

Opening a dedicated business bank account and a business credit card offers several advantages:

• Provide a clear record of business transactions that simplifies accounting and tax preparation
• Build a distinct business credit history that’s useful for seeking loans or lines of credit for expansion
• Demonstrate professionalism and financial responsibility to clients and suppliers.

Obtain business licenses and permits

Secure the proper licenses and permits for your business to validate your operations and ensure your adherence to established regulations. Operating without them can expose your business to several penalties, including fines, legal action, and forced closure.

Beyond these liabilities, obtaining the necessary credentials also builds trust with your customers. It shows your commitment to operating ethically and professionally, which enhances your reputation in the business world.

Additionally, these licenses and permits often provide access to important resources and protection. For instance, workers’ compensation insurance safeguards your employees in case of workplace injuries. On the other hand, a sales tax license allows you to collect and remit taxes legally to avoid future complications with revenue authorities.

We recommend you research thoroughly the particular licenses and permits required for your industry and location to be aware of the regulations you need to comply with.

Maintain LLC compliance

Maintaining your LLC in good standing offers several advantages. One is that it preserves the limited liability protection your LLC structure provides. Second, you create a good reputation in your industry, which offers a boost when you’re looking for investors or negotiating contracts.

Financial institutions and other businesses prefer to interact with entities that demonstrate responsibility and adherence to regulations.

Finally, prioritizing your LLC compliance helps you expand your business. If you plan to operate in other states, maintaining good standing in your home state simplifies the foreign qualification process.

5 types of LLCs

Single-Member LLC (SMLLC)

Ideal for individual entrepreneurs, the Single-Member LLC offers the simplicity of a sole proprietorship and the liability protection of a corporation.

It’s perfect for solo business owners who want to keep their personal and business finances separate. SMLLCs are easier to set up and maintain compared to more complex LLC structures. Apart from that, they’re also a popular choice for freelancers, consultants, and individual proprietors.

Multi-Member LLCs

Multi-Member LLCs are suitable for you if you own a business with a partner or several partners. These LLCs work similarly to partnerships but with the benefit of limited liability protection.

They’re ideal for joint ventures or partnerships, which help owners clearly define their roles, responsibilities, and how profits or losses are shared within a formal business entity.

Series LLC

A Series LLC allows multiple “series” or “cells” within a single LLC structure. Each series can own separate assets, liabilities, and members and managers. This structure benefits companies that manage several properties or projects, as it allows them to isolate risks and liabilities in separate divisions without creating a separate entity for each venture.

Professional LLC (PLLC)

PLLCs are perfect for licensed professionals like doctors, lawyers, accountants, and architects. These are ideal in industries where a state license is required to provide professional services.

PLLCs offer the same advantages as regular LLCs. However, they often come with specific requirements and restrictions based on state laws regarding professional services.

PLLCs also allow professionals to enjoy liability protection while still adhering to the ethical and legal standards of their practice.

Low-Profit LLC (L3C)

Low-Profit LLCs, or L3Cs, have the simplicity of running a regular business mixed with a non-profit’s social goals. These qualities are what make it attractive for both private investments and philanthropic funding. Unlike typical businesses that aim for maximum profit, L3Cs focus on achieving a social or environmental objective.

This type of LLC is commonly found in areas such as education, healthcare, and sustainability. The hybrid nature of this LLC allows you to pursue a social mission while making money and ensuring financial stability at the same time.

Pros and cons of forming an LLC

Begin your entrepreneurial journey as an LLC

Starting an LLC is ideal for a small business because it’s easy to manage, offers tax flexibility, and provides limited liability protection. You can guarantee your personal assets will stay safe, giving you peace of mind as you navigate the challenges of running a business.

As you decide whether forming an LLC is for you or not, use our guide to gauge the advantages and disadvantages that come with this type of business structure.

Do you want to know how you can grow your business further? Build a business website! Read our article on website planning to help you create a successful site for your small business.

How to start an LLC FAQ