Start an LLC
To start an LLC, you will need to file articles of organization in your home state and appoint a registered agent. Below, we cover the details you need to know, including how to maintain your limited liability company (LLC) after your business gets started.
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What is an LLC?
An LLC (Limited Liability Company) is a type of business entity. LLCs can be owned by one person or multiple people, or even by certain business entities. Each person or entity having ownership in an LLC is called a “member.” There is no limit to how many members can share ownership of an LLC.
Some LLCs are member-managed, meaning the company’s day-to-day operations are managed entirely by its members. Other LLCs are manager-managed, which means non-members or only specific members handle the company’s day-to-day operations. Basically, if an LLC has even one non-managing member, the LLC is manager-managed.
As suggested by the “limited liability” portion of the name, LLCs provide limited liability for members. This is important especially as it relates to asset protection. If the LLC owes creditors money, or if lawsuits are filed against the LLC, members’ personal assets are safe from collection as long as they’ve been kept separate from business assets. Only the LLC’s assets will be subject to seizure.
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How to Start an LLC
Before you start an LLC, you should be aware of the steps that go into forming a company. Missing one of these steps could create more work for you down the line.
What steps go into starting an LLC?
The process may be slightly different in your state, but in general, forming an LLC requires that you do the following:
- Name your LLC
When naming your LLC, you need to make sure that the name you choose is available. All states have a database where you can browse available business names. You can also reserve your name in most cases, which can be a good idea if you’re not quite ready to form your LLC. - Appoint a registered agent
A registered agent is a business or individual who accepts official documents and service of process on your LLC’s behalf. Most states require LLCs to have a registered agent (sometimes called a statutory agent or agent for service of process). The registered agent must have a physical address in the state where you conduct business, and needs to be available during business hours at this address. - Submit Articles of Organization
Articles of Organization are what you submit to the state to officially form your LLC. Articles of Organization are accompanied by a state filing fee, though the amount varies by state. Skip ahead to the “Filing Articles of Organization” section on this page to learn more. - Draft an LLC operating agreement
An operating agreement is a document that details how your LLC will run. Operating agreements can cover everything from the purpose of the LLC to describing what to do in the event of a member departure. While states rarely require LLCs to submit its operating agreements, they are nevertheless an essential formation document if you hope for smooth business operations. - Get an EIN
EIN stands for Employer Identification Number. It’s basically your company’s social security number, and in most cases you’ll need to have one before you can open a company bank account. EINs are issued directly from the IRS. - Open and fund a bank account
Your LLC needs its own bank account. If it doesn’t have one, limited liability dwindles since member money and company money will be combined. But having an empty bank account isn’t much help either—you and other members will need to figure out how much money is needed to run the LLC, and then fund the bank account with that amount.
Starting an LLC can be intimidating.
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Filing Articles of Organization is essential to starting an LLC, since skipping this step means your company won’t be registered with the state.
States have different requirements when it comes to Articles of Organization. Some states, like Delaware, have a simple form with a handful of questions. Other states, like Louisiana, have a convoluted form with many questions. Most states fall somewhere in between.
Here’s an overview of the type of information most states require in their Articles of Organization:
- Company Name
Your name needs to include “Limited Liability Company” or an abbreviation like “LLC.” Many states also prohibit the use of certain words in company names, such as “bank” or “trust.” - Duration
Most LLCs don’t have an end date. But if yours does, that date would be listed in the duration section. - Effective Date
If you want your LLC to be formed on a specific date, as opposed to right when the Articles are filed, that date is listed here. There are generally state rules for how far into the future the effective date can be (usually 90 days). - Registered Agent
Most states require you to appoint and maintain a registered agent. The registered agent can be you, a different member of your LLC, someone else (as long as they have a physical address in the state), or a commercial registered agent. - Principal Office Address
This is the street address where your LLC conducts business, though some commercial registered agents will allow you to use their physical address instead. - Management
Some states’ Articles ask whether the LLC is member-managed or manager-managed. They may also ask for names of members and/or managers. This is not the norm, but in states where it’s required, such as Louisiana and Arizona, there’s no getting around it. - LLC Organizer
This is just the person signing and submitting the articles. They don’t necessarily have to be a member of your LLC. If you hire a business or attorney to complete and submit your formation paperwork, they’ll sign here.
Where do I submit the Articles of Organization?
Most states require Articles of Organization to be submitted to the Secretary of State’s office, either by mail, in person, or via an online system. Some states have a different office set up to receive such documents, such as Hawaii’s Business Registration Division.
Regardless of where your state collects Articles of Organization, the function is the same: to file your formation paperwork and register your LLC with the state.
How much does it cost to file Articles of Organization?
Exact amounts vary by state, but the most common payment to submit with your Articles of Organization hovers around $100.
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Get Law on CallMaintaining an LLC
Once your LLC is formed, it needs to be maintained. Just as starting your LLC comes with paperwork and payment, so does your company’s maintenance.
What is an annual report?
Annual reports are essentially informational updates with the state. Most states require annual reports or some related report, such as a biennial or periodic report. (These ask for generally the same information as annual reports, just with different due dates.)
A handful of states do not require annual (or related) reports for LLCs. Check with your state’s Secretary of State (or applicable business division) for filing requirements.
Annual reports are submitted to the same office that files Articles of Organization. So if your Articles went to your state’s Secretary of State, that’s where your annual report will go, too.
In nearly every state, payment is also due with your annual report. The amount you will pay varies by state.
Do LLCs pay taxes?
In all matters involving taxation, you should speak with a professional tax adviser. But in general, by default, the IRS treats LLCs as pass-through or disregarded entities, which means profits and losses typically pass directly to members who file individual tax returns and pay their own taxes. In other words, the IRS typically treats single-member LLCs as sole proprietorships and multi-member LLCs as partnerships.
LLC members will usually be required to pay individual income taxes on earnings, along with Social Security and Medicare contributions.
However, LLCs can elect with the IRS to be taxed as another form of pass-through entity: an S corporation. In general terms, an S corp election renders LLC owners as employees who must be paid reasonable salaries. A tax adviser can provide you with details about how this might affect a member’s personal taxes and the taxes that must be paid by the LLC.
About 10 states impose taxes on LLCs directly.
Starting an LLC FAQs
Who should start an LLC?
Whether or not you should start an LLC depends on your business goals and the amount of liability you’re willing to assume. Since an LLC acts as an entity separate from its members, it can keep your personal assets away from creditors and out of lawsuits (assuming those creditors and lawsuits are aimed at your LLC). Conversely, if you have a sole-proprietorship and your LLC is sued, your personal assets could be claimed as damages.
When is the right time to start an LLC?
Some people choose to start an LLC before starting business operations. Others wait to form an LLC until after their business is earning a profit. There’s not necessarily a right answer that works for every situation, but a general rule is that you should form your LLC before assuming substantial risk and racking up business debts. That way, if your business is sued, only the LLC’s assets will be on the table.
How long does it take to form an LLC?
Forming an LLC can take anywhere from a few hours to several weeks depending on your state and if you pay to expedite the filing process. Of course, doing the leg work—drafting an operating agreement, opening and funding a bank account, creating a business plan—can take much longer.
How much does it cost to form an LLC?
The cost to form an LLC varies by state. Most states charge around $100 to file Articles of Organization.
What’s the difference between an LLC and a corporation?
LLCs and corporations are both business entities that provide limited liability to owners, but they differ in several important ways. Corporations issue stock to shareholders, unlike LLCs, operate according to corporate bylaws instead of operating agreements, and corporations are (automatically) taxable entities. To learn more, visit our Start a Corporation page.
What is a foreign LLC?
A foreign LLC is a company operating in a different state than the one in which it was formed. Let’s say an LLC formed in Utah, later expanding into Arizona and New Mexico. The company would register as a foreign (out-of-state) LLC in Arizona and New Mexico (and any other state it expanded operations to besides Utah.)
Is the information in my Articles of Organization publicly available?
Yes. Any information you include in your Articles of Organization will become part of the public record.