How To Form an LLC: Step-by-Step Guide for Every State

In a single year, over 5.5 million businesses get started in the United States. Because of their pass-through taxation, simple setup, and strong liability protection, limited liability companies (LLCs) are one of the most common structures for new businesses. Depending on where your business is located, your formation requirements, costs, and post-formation compliance can vary significantly.

What Is an LLC and Why Is It the Most Popular Business Structure?

An LLC is one of the most popular structures because it protects the owner’s personal assets from business liabilities. It provides additional liability protections without changing your how you are taxed. By registering your company with your state, you can enjoy a few key benefits:

• Simplified taxes
• Minimal ongoing formality
• Improved liability protection

LLC vs. Sole Proprietorship: The Key Difference

The basic difference between an LLC and a sole proprietorship is your liability. As a sole proprietor, there is no separation between your personal and professional liability, profits, losses, and assets. 

An LLC creates a legal wall that separates your private assets from your business liability. If your business is sued, an LLC’s liability protections keep your home, car, retirement savings, and personal assets safe.

In terms of taxes, pass-through taxation is the default option for LLCs. Unless an LLC elects to be taxed as a corporation, the LLC’s profits and losses will be reported on the owner’s tax return, just like they would be with a sole proprietorship. 

LLC vs. Corporation: When To Choose Each Option

When deciding on a business structure, you can also choose to set up a corporation. Corporations are more complex to set up than LLCs, but they provide more funding options. Unlike an LLC, a corporation can raise money through the sale of stock and initial public offerings (IPOs).

For small- and medium-sized businesses, an LLC is significantly more straightforward to set up than a corporation. It is also more flexible and requires fewer compliance hassles.

Before You File: Key Decisions to Make First

So, what is an LLC formation like in each state? Depending on where your LLC is located and how many members it has, your formation process will vary. Getting these decisions right up front will save you money and headaches later on.

Which State Should You Form Your LLC In?

How to start an LLC varies depending on where your LLC is formed. For example, while Alabama doesn’t require an operating agreement, Missouri does. Because out-of-state LLCs would have to register as a foreign LLC in your home state, most companies choose to set up the LLC in their home state. Choosing to form an out-of-state LLC basically doubles the fees you pay and leads to more stress.

If you’re a startup or have a complex business structure, Delaware is one of the best states for LLC formation. However, most LLCs aren’t complex enough to benefit from a Delaware formation.

Online, privacy-focused businesses often register in Wyoming or Nevada. Nevada used to be the favorite, but its combined $350 charge for annual renewal has made it less popular. In comparison, Wyoming has low filing fees: $100 for LLC filings and $60 for annual reports. Wyoming also has no state income tax, but you’ll have to pay registered agent fees and extra costs if you are out of state.

For most businesses, setting up an LLC in your home state is the right choice. A good way to see what type of structure and registration are typically used in your industry is by researching similar companies through EntityCheck’s Secretary of State (SOS) search tool.

Single-Member or Multi-Member LLC?

The next step is to decide whether you will be a single-member or multi-member LLC. A single-member LLC is taxed like a sole proprietorship and has just one member. Meanwhile, a multi-member LLC is a partnership by default.

If you have multiple members and decide to create a multi-member LLC, you need a clear operating agreement that protects every party’s interests. It should cover profit distribution, ownership percentages, decision-making authority, and what happens if a member leaves.

Member-Managed vs. Manager-Managed LLC?

As part of your Articles of Organization, you will have to specify if you are run by your members (member-managed) or an appointed manager (manager-managed). A member-managed designation is often the choice for LLCs with just a few members, while manager-managed LLCs are popular when the members are passive investors who don’t play an active role in day-to-day management.

How To Form an LLC: Step by Step

After you’ve made these essential determinations, the actual process involved in how to create an LLC will be fairly similar across all 50 states.

Step 1: Choose and Search Your LLC Name

You must select a unique name for your business. Depending on your state, the name must also include LLC, L.L.C., or limited liability company. There may also be limitations on words like banking or insurance unless you have approval.

To find the right name, follow these steps.

1. Search the Secretary of State database in your state.
2. Check the United States Patent and Trademark Office’s (USPTO) database for trademark conflicts.
3. Verify that your preferred website domain is free.
4. See if social media handles are available for your brand name.

Before you file your LLC, you can use EntityCheck’s SOS business search to see if your name is currently available. In most states, you can pay a fee of $10 to $50 to reserve a name for 60 to 120 days while you prepare your LLC formation documents.

Step 2: Designate a Registered Agent

What is a registered agent for an LLC? Every LLC must have a registered agent who accepts business documents, service of process, and government documents during business hours. If you have a physical address in the state, you can save $100 to $300 on registered agent fees by using your home address. 

However, many LLCs pay for a registered agent so that their address doesn’t become part of the public record and to ensure someone is always available to receive correspondence. A registered agent is especially important if you are operating an LLC from out of state. 

In most cases, it costs around $50 to $300 per year for a professional registered agent service. If you do not maintain a registered agent, it can lead to penalties, the loss of your business standing, and even dissolution.

Step 3: File Your Articles of Organization

The Articles of Organization must be legally filed with the Secretary of State to create your LLC. It includes key information, like your business name, registered agent name and address, principal business address, and management structure. Fees can range from as low as $35 in Montana to $500 in Massachusetts. On average, online filings are processed in just 1 to 10 business days.

Unsure if your LLC is currently active? Check EntityCheck’s SOS Search tool to find out.

Step 4: Draft Your Operating Agreement

Because how to start an LLC varies by state, operating agreements aren’t required in every state. California, Delaware, New York, Maine, and Missouri are the only states that require this agreement. However, it’s a good idea to have this document no matter where you live because it supports your legal liability status and clarifies your organization’s verbal agreements.

For a single-member LLC, a basic template is enough. If you have a multi-member LLC, your agreement must detail what happens if a member leaves, management roles, profit-and-loss distributions, and procedures for adding new members.

Cost

• Basic Templates: Free
• Version From an LLC Formation Service: $100 to $300
• Attorney-Drafted Agreement: $500 to $1,500

Step 5: Get Your Employer Identification Number (EIN)

An EIN is like your company’s version of a Social Security number. By obtaining an EIN, you can keep your personal information safe. EINs are necessary for hiring workers and are often required to open a business bank account.

While many third-party services will charge you $50 to $100 to get an EIN, you can apply for one for free on the Internal Revenue Service (IRS) website in about 15 minutes. To see if you already have an EIN, check out EntityCheck’s EIN Lookup tool.

Step 6: Open a Business Bank Account

While most states don’t legally require a bank account, having one helps to protect your liability status by separating your personal and professional assets. To set up your account, you will likely need to provide the following documentation.

• EIN
• Articles of Organization
• Operating agreement
• State-issued letter of good standing

Step 7: Obtain Required Business Licenses and Permits

Once you have figured out how to create an LLC, you can’t just open up your business. Depending on the area, you’ll need a range of business licenses and permits. At a minimum, you’ll likely need to pay $30 to $100 for a general local business license. Construction, finance, real estate, healthcare, and similar industries also have specialized permits and licenses.

Knowing which licenses to get can be challenging when you’re just starting. With EntityCheck’s Professional License Search, you can find out what type of licenses similar businesses get in your industry.

Step 8: File a DBA If Operating Under a Different Name

How you register your doing business as (DBA) name will vary by state. If you operate under any name other than the LLC’s registered name, you’ll need to register the DBA and open a bank account under the trade name.

To see if your DBA name has already been registered by someone else, look it up through EntityCheck’s DBA Search tool.

Step 9: Consider Whether To Elect S Corp Tax Status

Many companies forget about S corp elections. This overlooked step can potentially reduce your tax bill, but you must file IRS Form 2553 within 75 days of formation. Existing LLCs have until March 15 of the current tax year. At lower revenue levels, an S corp’s tax savings are outweighed by the added administrative costs and fees. Once a business’s profits reach the $80,000 threshold, the financial savings of the S corp start to be worth more than the added administrative expenses.

State-Specific LLC Formation Notes

The process of setting up an LLC is largely the same across all 50 states. However, there are five notable exceptions that you should be aware of.

New York

In New York, LLCs must publish a notice of formation for six weeks in the county listed on the Articles of Organization. It must be published in a weekly and a daily local paper. The cost of publication can vary between $500 and $2,000. To comply, you’ll also need to pay $50 and file a Certificate of Publication after the six weeks are complete. The state has a $200 filing fee, and a $9 biennial statement must be filed every two years.

California

California requires LLCs to file a Statement of Information within 90 days of formation. After that, it must be filed every two years.

You’ll also need to pay an $800 minimum franchise tax each year, even if your business hasn’t made any money yet. Gross receipts above $250,000 are also taxed in the state of California.

California is known for its high compliance burden. Unfortunately, registering an out-of-state LLC won’t reduce this burden because you would still have to register as a foreign LLC in California.

Arizona

Like New York, Arizona has a publication requirement. You must publish your notice of formation for three weeks, which costs an average of $30 to $100.

Nebraska

LLCs in Nebraska must publish a notice of formation for three consecutive weeks. Typically, this costs around $40 to $100. 

Texas

Businesses have to pay a $300 filing fee in Texas, which is among the highest in the nation. However, there is no separate annual report requirement, although a free Public Information Report (PIR) or Ownership Information Report is required. 

Texas is a popular state for LLC formation because it has no personal income tax and possesses a large economy. Franchise taxes are only owed by companies that bring in more than $2,650,000 in revenue. In total, the processing timeline is around two to three business days for online orders. 

Wyoming and Delaware for Out-of-State Formation

If you plan to create an out-of-state LLC, Wyoming and Delaware are the most common options. Wyoming has an LLC filing fee of $100, no state income tax, no franchise tax, and excellent privacy protections. Ongoing maintenance fees are just $60.

Meanwhile, Delaware charges a $110 filing fee. Each year, LLCs must pay a flat annual fee of $300. 

Trying to avoid high fees by filing in another state generally doesn’t work. In most cases, your state will still require you to register as a foreign LLC and pay fees, negating any savings.

How Much Does It Cost to Form an LLC?

So, how much does it cost to set up an LLC? Several factors influence your startup costs, with most businesses paying between $100 and $1,000 during their first year of operations.

State Filing Fee (One-Time)

Your state filing fee is a one-time cost that often ranges between a low of $35 in Montana to $500 in Massachusetts. Most states fall between $50 and $200, with an average of $132. The following are just a few examples of what you are expected to pay in different states.

• Montana: $35
• Colorado: $50
• California: $70
• Wyoming: $100
• Delaware: $110
• Florida: $125
• Texas: $300
• Massachusetts: $500

Annual Report and Franchise Tax (Ongoing)

In most states, you’ll need to file an annual or biannual report and pay ongoing fees to maintain your standing. While states like Arizona, Ohio, Missouri, and New Mexico let you file for free, others charge filing fees and franchise taxes. For example, franchise taxes in California cost at least $800 per year. Meanwhile, Massachusetts, Nevada, and Tennessee charge $500, $350, and $300, respectively.

Registered Agent Fee (Ongoing)

If you are your own agent, you don’t have to pay anything for a registered agent fee. However, you’ll need a physical address in the state, someone at the address during business hours, and your address will be public record. Out-of-state LLCs will need to hire a registered agent. The cost can vary, but it is normally around $50 to $300 per year.

Operating Agreement

You can access DIY templates for free. Additionally, your formation service may have a low-cost option for around $50 to $150. While a single-member LLC can often go the DIY route, a multi-member LLC is more complex. As a result, multi-member LLCs may benefit from spending $500 to $1,500 on an attorney-drafted agreement.

Total First-Year Cost Estimate by State

Your total upfront cost will vary significantly from one state to another. On the low end, you may pay just $150 to $250 in a state like Wyoming or Montana. In California, the cost can easily go over $870. Because of New York’s publication requirement, first-year LLC costs are often between $750 and $2,500+.

After You Form Your LLC: Ongoing Compliance

Forming an LLC is merely the first step. After your LLC is created, there are other ongoing filing requirements and fees necessary to maintain the LLC’s status. If a company doesn’t comply with these requirements, the company can lose its good standing or personal liability protection.

Annual Reports and State Fees

The majority of states require some type of annual report or state fee. These must be filed and paid on time, or your business may be dissolved. Many states do not send reminder messages, so add your state’s due date to your calendar.

Maintaining the LLC Veil

To protect the corporate veil, you must avoid commingling business and personal funds. Most courts consider operating without an operating agreement and using LLC funds for personal expenses as activities that pierce the corporate veil. You can avoid these issues by maintaining a business bank account, keeping strict records, and never using business funds for personal purchases.

Keeping Your Operating Agreement Updated

Operating agreements are meant to be living documents, so they should change as your company’s status changes. To avoid potential disputes, you should update it in the following circumstances:

• A member joins or leaves the LLC
• The ownership percentage changes
• Your management structure evolves

You don’t have to file the new agreement with the state. Instead, it should be kept for your records.

Registered Agent Maintenance

If your registered agent relocates, resigns, or is unable to fulfill their duties, you must update your agent information with the state. Otherwise, your LLC can lose its standing. At the very least, you could miss out on important legal documents.

Unsure if your information is up to date? You can use EntityCheck’s SOS Search to verify who your registered agent currently is.

Foreign Qualification If You Expand to a New State

As your company expands, you may decide to open an office, hire workers, or conduct business in a new state. When this happens, you must register as a foreign LLC in that state and pay the appropriate fees. Besides causing potential penalties and back fees, failing to do so can also mean you are unable to enforce contracts or sue in state courts. To see if you’re properly registered in each state, use the SOS Search tool