How to Form an LLC

So, you’re working on a new business…Congratulations! Now that you’re taking steps to turning this idea into a reality, we’re here to help you with a big part of starting that new business - Forming an LLC.

LLCs are an excellent business structure for small businesses, and one of the best ways to protect your personal assets as you grow.

Our goal at LLC Fit is to make the lives of entrepreneurs easier, and the steps in this guide will do so by answering the question: How to start an LLC!

Learn the basics: What is an LLC, and How Do They Work?

How to Form an LLC - The Easy Way

Forming an LLC doesn’t mean getting buried in a pile of paperwork or calling up an attorney to spend thousands of dollars. 

The industry has evolved quite a bit over the years, and with that, we can simplify the formation process into just two steps: name your LLC, and choose an LLC service.

Step 1: Name Your LLC

The first step in creating an LLC is to find a name. If you already have something in mind, you’ll want to do an LLC name search in your state to ensure the name isn’t already taken.

Aside from the state’s business entity name search, you should also look into getting the domain (website address). This will ensure you have a strong base for marketing in the future.

There are a couple of guidelines to be aware of when naming an LLC. Your individual state may have additional or slightly differing LLC naming rules, but these are a few of the main ones:

• Your name must include "LLC," "L.L.C.," or "Limited Liability Company."
• It can't be the same as or too similar to an existing business name in your state.
• Avoid using words that could confuse your LLC with a government agency.
• Some words, like "Bank" or "Insurance," may require additional paperwork.

Once you’ve nailed the name down and gotten the domain, you can move onto step 2!

Step 2: Form with an LLC Service

Using a professional LLC formation service saves you time, ensures you don’t mess anything up,  and offers features you can’t get when forming on your own.

A majority of business owners choose to use a service because:

1. It's cost-effective. Many services charge less than $50 plus state fees.
2. It saves time. They know the process inside and out, speeding things up.
3. It reduces errors. Mistakes can delay your LLC formation, incur additional fees, or cause legal issues later.
4. They often include extras like registered agent service or operating agreement templates.
5. They offer additional filings like FinCEN’s BOI Report and EIN (employer identification number).

LLC Fit’s Recommended LLC Services 

To see a full comparison of LLC formation companies, check out our Best LLC Services of 2024.

Steps to take After Forming an LLC

Once your LLC is formed, there are a few more steps to get you should look into to get your business up and running:

1. Get an EIN (Employer Identification Number)
   This is like a Social Security number for your business. You'll need it to open a bank account, hire employees, and file taxes.
2. Create an Operating Agreement
   An Operating Agreement outlines how your LLC will be run. It's not required in all states, but it's always a good idea.
3. File a BOI (Beneficial Ownership Information) Report
   As of January 1, 2024, most LLCs must file this report with FinCEN. It discloses who owns and controls the company.
4. Open a Business Bank Account
   Keep your personal and business finances separate to maintain your liability protection.
5. Set Up a Business Website
   In today's digital age, an online presence is crucial for most businesses.

Form Your Own LLC

If you decide to form your LLC without a service, we can help you with that too.

Remember that each state has slightly different formation processes and fees, but these are the general steps:

1. Do a state business entity name search and select a name for your LLC.
2. Choose a Registered Agent – either yourself or a third-party service
3. File the LLC Articles of Organization with the Secretary of State - This includes the state’s LLC filing fee
4. Create an LLC operating agreement
5. Get an EIN through the IRS
6. File an Initial BOI Report with FinCen

Find Your State’s LLC Formation Steps

LLC Formation Publication Requirements

A few states - Arizona, Nebraska, and New York - require newly formed LLCs to publish a notice of their formation in local newspapers. 

If you’re in a state that has a publication requirement, you'll need to factor in the cost and time for publication.

Costs of Forming and Maintaining Your LLC

Even though LLCs are a fairly simple business structure there are costs associated with both the formation and upkeep.

Understanding these costs involved in forming and running an LLC can help you budget effectively.

Initial Costs of an LLC

• State Filing Fee
  Filing the Articles of Organization with the Secretary of State comes with a fee. We refer to this as the “state fee” or “filing fee”. The state fee ranges from $40 to $500, depending on your state.
• LLC Formation Service
  Most people choose to use an LLC service to form their LLC. These companies charge a fee that ranges from $0 to $300 for this service.
• Additional Business Initiation
  Additional reports, licenses, and documents needed to get your business going may have fees associated with them. This could include getting an EIN, filing a BOI Report, drafting an operating agreement, getting a business license, etc…

Learn more: Cheapest Ways to Form an LLC

Ongoing Costs of an LLC

• Annual Report Filing
  Many states require LLCs to file an annual report, which has an associated fee. This fee ranges from $20 to $200 per year.
• Registered Agent
  If you use a professional registered agent service (most businesses do) the renewal fee is generally between $120 - $300 per year.
• Business Licenses and Permits
  These costs and fees vary widely based on your industry and location. Once you get your business to operation, you’ll have a better understanding of these ongoing costs and how to budget for them.
• Taxes
  LLCs may offer pass-through taxation, but that doesn’t mean you’re exempt from paying taxes. Some different types of taxes you’ll see as a business are: income taxes (federal and state), self-employment taxes, payroll taxes, sales taxes, property taxes, franchise taxes or annual fees (in some states).

Looking to save on taxes? LLC vs S Corp - Which is Best For Your Business?

LLCs vs Other Business Structures

While LLCs are often the choice of new or small businesses, understanding how they compare to other business structures can help you confirm that it's the right choice for your business.

Advantages of LLCs

LLCs offer several key benefits:

• Limited Liability - Your personal assets are protected from business debts and lawsuits.
• Tax Flexibility - Choose how you want your business to be taxed (pass-through is the standard, but you can opt for S corp or event C corp taxation)
• Less Paperwork - Compared to corporations, LLCs have fewer reporting requirements.
• Credibility - An LLC often looks more professional than a sole proprietorship. 

LLC vs Sole Proprietorship

• LLCs offer personal asset protection; sole proprietorships don't create any separation between the business and your personal entity - meaning your personal assets are at risk in the case of a lawsuit or accident.
• LLCs can have multiple owners; sole proprietorships can't.
• LLCs may have more tax options than sole proprietorships.
• Sole Proprietorships are simpler than LLCs - requiring little paperwork or fees.

Go deeper: LLC vs Sole Proprietorship: Which is Best for Your Business?

LLC vs Corporation

• LLCs have more flexible management structures than corporations.
• Corporations may offer more options for raising capital through stock sales.
• Corporations face more extensive record-keeping and reporting requirements.
• Corporations are more expensive to upkeep and manage than LLCs.

Learn more: LLC vs Corporation: How to Choose for Your Business

LLC vs LLP Partnership

• LLCs can be formed with just one member; LLPs require at least two partners.
• LLCs offer more flexibility in management structure.
• LLPs are often used by professional service providers like lawyers or accountants.

LLC Formation FAQ

Looking for more answers on LLCs? Check out our LLC - Frequently Asked Questions page!