How to Start an LLC in 8 Steps: Tips from Attorney and LLC Owners

Starting a new LLC (limited liability company) is an exhilarating leap into the entrepreneurial world. Yet, the administrative side of setting up an LLC can often be puzzling and even daunting.

In this guide, we’ll navigate how to start an LLC together. You’ll gain insights from Brooke Davis, a business attorney with over a decade of experience, alongside real stories from six LLC owners about their administrative hurdles and triumphs in forming their limited liability companies.

Step 1: Make Sure an LLC Is for You

LLCs have always been a popular business entity type for first-time entrepreneurs; the IRS reports a yearly increase in domestic LLCs since 2004.

However, be sure you are making an informed decision when going for an LLC instead of other types of business structure. While LLCs are popular for their flexibility (which can even include adding a board of directors) and limited liability for business debts, they may not be the best fit for every business.

“If your solo business endeavor has just started and is only generating marginal profits, the costs associated with forming and maintaining an LLC could outweigh the benefits,” explains business attorney Brooke Davis. “In such cases, operating as a sole proprietorship might be more advantageous due to its simplicity and lower cost.”

It’s crucial to assess the financial aspects of your business carefully before deciding on an LLC, ensuring that the benefits align with your specific situation and don’t impose unnecessary financial burdens.

► READ MORE: What is an LLC? Advantages and Disadvantages Explained

Step 2: Check Your State Requirements

Different states have distinct requirements for LLCs. Here are some key aspects to consider:

• Annual Reports and Fees: Some states require annual reports and fees. In Texas, LLCs must file an annual Public Information Report along with a Franchise Tax Report. Conversely, LLCs in New York file a Biennial Statement (every two years).
• Franchise Taxes: These vary by state. For example, California imposes a minimum annual franchise tax of $800.
• Unique Requirements: Some states have specific requirements all LLCs must follow. New York, for instance, mandates that new domestic LLCs publish a formation notice in local newspapers for six consecutive weeks, which can cost from a couple of hundred to thousands, depending on your business’s location.
• Rules for Professional LLCs: If your business plans to offer professional services that require a license from a public licensing authority (e.g., legal counseling, accounting), some states require you to establish a professional LLC instead of an LLC.
• Naming Requirements: The name must include an ending like “LLC” or “Limited Liability Company,” be unique (check with state tools or the US Patent and Trademark Office), and not imply a different business type (e.g., “Bank” or “Corp.”).
• Age Restrictions: Some states have age restrictions for minors who want to form an LLC; if you’re under 18, make sure you check the requirements.

Understanding these variations is crucial for compliance and budgeting. Visit your state website to review the specific laws and requirements, or consult a local attorney for accurate guidance.

Step 3: Think About How You’ll Operate

As you establish your LLC, it’s crucial to deliberate on several operational aspects. Creating an LLC operating agreement is an essential part of LLC formation despite being optional by most state laws (however, sometimes banks will require an operating agreement to open a business account).

An LLC operating agreement functions in a way similar to corporate bylaws. Specifically, it sets out the rules for:

• How the LLC operates, including how it will be managed (member-managed vs. manager-managed LLC);
• Each member’s rights and responsibilities;
• What happens if a member wants to sell or transfer their interests.

You don’t legally need an attorney to review your operating agreement, but you should if you have the resources.

“Creating an operating agreement is a key component of a successful LLC,” states Brooke. “It establishes internal rules and structure for your business, thus help address any operational issues that may arise. It also keeps you in control of how your business functions, rather than defaulting to standard state LLC operating laws, additionally, when considering the best options for your LLC, the type of business entity you choose is important, as well as deciding on the best state for LLC formation based on your goals. You can also alter the terms of your agreement in the future (if necessary) by using an LLC operating agreement amendment.

You can also alter the terms of your agreement in the future (if necessary) by using an LLC operating agreement amendment.

Choosing the Right Name for Your LLC

Your LLC name should be unique, legally compliant, and easy to remember. Ensure it:

• Includes “LLC” or “Limited Liability Company”
• Avoids restricted words like “Bank” or “Insurance” (state-specific rules apply)
• Is distinguishable from existing businesses (check your state’s database)
• Has an available domain for online presence

Before finalizing your name, run a search with your state’s business registry to avoid conflicts and ensure compliance.

► READ MORE: LLC Member vs Manager: Which Should You Choose?

Step 4: Gather Your Funding

Starting an LLC can cost hundreds to thousands of dollars, depending on your state and needs. Here’s a breakdown of the initial costs you might encounter:

• State Filing Fees: This is a mandatory cost for registering your LLC with the state. The amount varies significantly by state, ranging from as low as $50 in some states to over $500 in others.
• Registered Agent Fees: All states require LLCs to have a registered agent. If you choose to use a professional service for this role, fees typically range from $50 to $300 annually.
• Business License Fees: You may need to obtain business licenses depending on your business type and location. These fees vary based on the specific requirements of your city, county, or state.
• Name Reservation Fee: If you want to reserve your LLC’s name before filing the formation documents, there’s usually a small fee for this service, generally around $10 to $100.
• Attorney Fees: If you opt to hire an attorney for guidance in setting up your LLC, the fees can vary widely based on the complexity of your business structure and the attorney’s rates. This could range from a few hundred to several thousand dollars, especially if you require specialized legal advice or assistance drafting operating agreements and other crucial documents.

On top of the fees above, you should also prepare your initial capital (the amount you will invest in starting the business). While there’s no minimum requirement, it’s important to adequately fund your LLC to cover operational expenses until the business becomes profitable.

► READ MORE: Convertible Promissory Note: Things You Should Know

Step 5: Do the Paperwork

Required documents to state an LLC vary by state and business, but they generally include:

• Articles of Organization: This document is a must if you’re filing your LLC by mail. It typically includes details like your LLC’s name, address, purpose, duration, and information about your registered agent. You can find templates on your state website. Some states refer to this document as “Certificate of Formation.”

• Business Licenses and Permits: Depending on your business’s nature and location, you might need specific licenses or permits to operate legally. These could range from general licenses to industry-specific permits. For example, Delaware requires all LLCs to obtain a general state business license.
• State-Specific Forms: Some states require additional forms alongside the articles of organization. Depending on your state’s regulations, these could include initial reports, publication affidavits, or specific disclosures.
• Local Zoning and Land Use Permits: If your business requires a physical location, ensure you comply with local zoning laws and have the necessary land use permits.
• Home Occupation Permit: If you’re running your business from home, some jurisdictions require a home occupation permit, especially if you expect regular business traffic or signage.
• Sales Tax Permit: Essential for businesses selling goods or services subject to sales tax. The requirement for this permit varies based on state laws and the nature of the business.

Preparing these documents carefully and ensuring they are correctly filled out and filed is crucial for the legal establishment of your LLC. It’s often helpful to seek professional assistance for this paperwork to avoid pitfalls.

Step 6: Pick a Registered Agent

Although LLC laws differ by state, all 50 states require an LLC to have a registered agent.

The registered agent is responsible for receiving legal documents, such as a court summons, and filing other documents, like tax reports. Agents act as a dependable contact for legal and state communications, ensuring your business stays compliant with state regulations and handles legal matters effectively.

Professional registered agent services are typically priced between $50 to $300 per year. These services offer expertise and reliability, ensuring that all legal and filing requirements are met promptly. Some operate nationally, which can be particularly useful if you have LLCs in multiple states.

If you don’t have the budget for professional services, consider naming a trusted individual, such as a friend or family member, to be your registered agent. You can also serve as your own registered agent.

Technically speaking, anyone can be named as a registered agent as long as they:

• Have a physical address in the state of your LLC’s registration;
• Are available during standard business hours; and
• Don’t mind their addresses being a part of the public record.

However, hiring professional services to avoid privacy concerns is generally recommended.

“If you don’t have a physical business and are serving as your own agent, you will have to provide a physical address. If your home is your only physical address, then you may want to use a professional RA to keep your personal address private,” suggests Brooke.

Step 7: File Application

You can file your LLC either online or by mail. Some states also accept filing in person or by fax. However, we recommend filing online as the processing time is much shorter than filing by mail.

File Online

Except for Maine, every other state and D.C. accepts LLC filing online. You can refer to the table below to find your state’s filing website and its filing fee.

File by Mail

You can obtain Articles of Organization from your state’s Secretary of State department, many of which provide standard, fill-in-the-blank templates for your convenience.

Typically, you will provide the following information on the document:

• The name of the LLC;
• Its registered address;
• The names of its members, member role, or title;
• Its registered agent.

Step 8: Wait for Approval

The processing time and how approved files are returned for LLC filings varies by state.

For example, LLCs filed online in Wyoming and Nevada are approved immediately. Some states, such as New York, will email you the filing receipts and related documents right after filing online, but the average processing time for approval is seven business days.

You can refer to your state’s Secretary of State website for the average processing time.

After your LLC is approved, you can proceed with the following:

• Check if any additional filings need to be made. For instance, all LLCs in Delaware are required to obtain a business license before starting to transact business in the state. California LLCs must file the Statement of Information within 90 days of registration.
• Get an EIN. If you plan to hire employees or have your LLC be taxed as a separate entity, it would need an EIN from the IRS (Internal Revenue Service). Banks may also require an EIN to open a business bank account. You can apply for an EIN online, by fax, or by mail.

• Understand how your LLC will be taxed. Your LLC will be subject to different tax classifications depending on its structure and the elections you make. If your LLC has more than one member and doesn’t file Form 8832, the IRS will generally treat it as a partnership for income tax purposes. You can choose to have it taxed as a S-corporation by filing Form 2553. A single-member LLC that doesn’t file Form 8832 is usually treated as a disregarded entity, meaning its income and expenses are reported on your personal tax return.

Interview: Experience Sharing from First-Time LLC Entrepreneurs

To help you better understand the process of starting an LLC, LegalTemplates invited six first-time LLC entrepreneurs to answer questions on how they started their companies. They are (in no particular order):

• Logan Allec, Founder of Choice Tax Relief, Inc.;
• Andrew Pickett, Owner at Andrew Pickett Law, PLLC;
• Wendy Wang, Company Owner at F&J Outdoors;
• John Lin, Owner at JB Motor Works;
• Katrina Purcell, Founder of Katrina Purcell LLC;
• John Nelson, Founder of Head West Guide.

Q1: What made you decide to establish an LLC instead of other types of business entities?

Logan

I was motivated to elect S corporation status for federal tax purposes. Since a sole proprietorship cannot elect S corporation status, my only two options were to form an LLC or a corporation. I opted to go the LLC route since LLCs generally have less stringent maintenance and filing requirements than corporations.

Andrew

I established my law firm as an LLC primarily due to the limited liability protection it provides. As a professional service provider, having personal assets protected from any potential legal claims or liabilities is crucial for the sustainability and growth of the business. I was employed before and had no personal business experience, so the limited liability protection offered by an LLC provided the peace of mind I needed to take on this venture.0

Wendy

My top reason for choosing the LLC structure was the need for personal liability protection, which LLCs offer. I wanted to ensure that my personal assets stay separate from the business’s.

John L

I chose to form an LLC over other business entities like sole proprietorship or incorporation because I wanted legal protection without dealing with the complex administrative responsibilities of a corporation. LLCs are easier to operate, and members’ personal assets are protected in case the business runs into legal difficulties.

Katrina

I had initially filed for a DBA at the suggestion of a coach; however, when I met with an amazing CPA, she immediately advised me to file for an LLC prior to getting payment from my first customer. The concept of getting an LLC originally seemed to be something to consider down the road and an unneeded expense in the early days.

John N

I felt like an LLC was an excellent middle ground between a sole proprietorship and incorporation. I didn’t want the administrative burden of a C Corp as a small business.

Q2. What were the main challenges or confusion during the process of establishing the LLC? If so, how were they handled?

Logan

I don’t think there was much confusion during the process of establishing the LLC. Perhaps the most challenging thing was remembering to also file the Statement of Information (Form LLC-12) that California requires to be filed within 90 days of forming the LLC.

I handled this minor annoyance by placing a reminder on my Google Calendar to remember to submit the statement of information after my LLC was formed.

Andrew

Our main challenge was understanding and navigating the legal requirements to establish an LLC in Florida. It was a complex process that involved researching and adhering to state-specific regulations, such as filing articles of organization, obtaining business licenses and permits, and registering for taxes. Additionally, there were also federal compliance requirements that needed to be met. To handle this, I sought the help of a business attorney who guided me through the process and ensured everything was done correctly.

Wendy

During the establishment process, state requirements posed some challenges. The confusion was mainly over getting the correct documentation and legal requirements. These challenges were overcome through diligent research, consulting with legal practitioners, and utilizing online resources.

John L

The main challenge in the process was definitely understanding the various state requirements and handling LLC taxes. They varied in complexity, and I had to seek the services of a professional to ensure I was compliant. I also had difficulty separating my personal finance from business finances initially.

Katrina

I was very lucky that my CPA handled everything for the LLC, so it was very smooth, including the decision to change to filing the taxes as an SCORP and the associated paperwork.

John N

Deciding between a member-managed LLC and a manager-managed LLC was the most confusing for me personally. I had heard a horror story of someone choosing a manager-managed LLC and having to switch after business formation.

Q3: How much did it cost for you to start the LLC?

Logan

I believe it was something like $70 for the filing fee that went along with the Articles of Organization (Form LLC-1) to the state and then an additional $20 when I filed the Statement of Information (Form LLC-12). I’m in California.

Andrew

It was around $500-$1000. This included fees for filing articles of organization, obtaining business licenses and permits, legal fees, and registering for taxes.

Wendy

The initiation of the LLC amounted to around $1,000 inclusive of Pennsylvania state fees.

John L

Here in Philadelphia, the cost to start an LLC can run anywhere from $125 to $200 or more, but it varies by state.

Katrina

The cost to establish the LLC itself was $1000 here in NY. (I live in Brooklyn) As this was a service of my CPA, her costs are about $9,000 per year to handle all personal and business tax-related items.

John N

I paid $500. I’m in California.

Q4: Looking back now, is there anything you wish you had known before starting an LLC?

Andrew

My biggest takeaway is the importance of having a solid business plan and financial projections before starting an LLC. As a new entrepreneur, I underestimated the time and resources needed to establish and grow the business. A clear roadmap and understanding of potential challenges would have helped us better prepare for the journey ahead.

Wendy

One thing I wish I had understood before setting up my LLC is how to better utilize services and resources that help keep up with state rules. It’s crucial to keep our company records up-to-date and meet state requirements on time.

John L

I wish I had known to keep a larger buffer for unexpected expenses. The reality of business expenses can be quite jarring compared to the theoretical costs we often calculate.

Katrina

I wish I had met with the CPA earlier in the process because closing the business bank accounts for the DBA and then redoing everything for the LLC took forever with Chase.

Q5: What advice would you give to someone starting an LLC?

Logan

Don’t believe tax advice from social media about how starting an LLC will necessarily save you on taxes — it doesn’t, in and of itself!

Also, make sure you understand what annual or biennial filings your state requires of your LLC; not keeping up with those can cost you penalties! Here in California, there’s a $250 penalty for LLCs that don’t keep up with their biennial Statement of Information (Form LLC-12) filings.

Additionally, check to see if your LLC has a filing requirement for tax returns. Single-member LLCs that don’t elect to be taxed as a corporation don’t have a federal filing requirement, but your state may still impose a filing requirement. Here in California, all LLCs must file Form 568 and pay an annual $800 LLC tax, even if they don’t have a federal filing requirement.

Not keeping up with these state rules after you form your LLC can be an expensive mess to clean up and could even result in your LLC being administratively dissolved by the state.

Andrew

I advise seeking professional guidance from a business attorney or legal consultant before starting an LLC. They will help you understand the legal requirements and implications of establishing an LLC and provide valuable insights based on their experience. Additionally, having a solid business plan and financial projections is crucial for setting realistic goals and expectations for your business.

Wendy

My advice would be to focus on short- and long-term business plans and remain diligent about state requirements. Remember to plan out the allocation of profits among members or managers, which differs in an LLC from a corporation.

John L

Get educated. Familiarize yourself with as much as you can about running an LLC. Also, seeking professional advice isn’t a sign of weakness but rather a strength. Nobody has all the answers, especially when starting. It’s a journey, and every step offers new learning experiences.

Katrina

Rely extensively on professionals such as accountants, lawyers, and experienced businesspeople. Their seasoned knowledge can make your process more efficient, saving both time and money.

John N

I would tell someone to find a lawyer or use a legal filing service rather than attempting to file the LLC themselves. The amount of money you could potentially save by doing it yourself is not worth the brain damage and potential that you make a mistake in your filing documents.