An LLC is a business entity created under state law that can separate personal assets from business liabilities while allowing flexible federal tax treatment. Most LLC formations follow eight steps:

  1. Choose the formation state.
  2. Select and clear the LLC name.
  3. Appoint a registered agent.
  4. File Articles of Organization or the state equivalent.
  5. Create an operating agreement.
  6. Obtain an EIN when required or useful.
  7. Select the appropriate tax treatment.
  8. Apply for licenses, open a business bank account and maintain state compliance.

State filing fees, tax rules and ongoing obligations vary. The Secretary of State or equivalent state agency controls the actual requirements. This guide also reflects FinCEN's rule that became effective on August 14, 2026.

LLC Formation at a Glance

Question Practical answer
What is an LLC? A business entity created under state law
Who owns it? Owners are called members
What document creates it? Articles of Organization, Certificate of Formation or a similar filing
Does an LLC protect personal assets? Generally, but the protection has limits
How is an LLC taxed? A single-member LLC is usually disregarded for federal income tax, while a multi-member LLC is usually taxed as a partnership
Is an operating agreement required? It depends on the state, but it is strongly recommended
Does an LLC need an EIN? Often, especially when it has employees, multiple members or certain tax obligations
Does every U.S.-formed LLC file a BOI report? No. As of September 20, 2026, U.S.-formed companies are exempt under the current FinCEN rule

Is an LLC the Right Business Structure?

Usually, yes, if you want liability separation, flexible ownership and less administration than a corporation. An LLC is often a practical choice for a small business with one or more owners.

Structure Main advantage Main limitation
Sole proprietorship Simple and inexpensive to start No legal separation between the owner and business
LLC Liability protection with flexible tax treatment State fees, filings and compliance obligations
Corporation Structure for issuing stock and raising outside investment More formal administration and recordkeeping

The U.S. Small Business Administration states that LLC owners are generally not personally liable for business debts, but it also notes that liability protection has limits. A corporation may be a better fit for a business that expects to raise venture capital, issue stock broadly or pursue a public offering.

A professional practice may need a professional limited liability company, professional corporation or another structure under state law. Licensed businesses should check the rules of the relevant state licensing board before filing.

Choose the State Where the LLC Should Be Formed

For most small businesses, the best state of formation is the state where the business actually operates. Forming an LLC in Delaware, Wyoming or another state does not automatically eliminate registration, taxes or filing obligations in the state where the business has employees, offices, customers or significant activity.

A company that conducts business in another state may need foreign qualification. This commonly requires registering the existing LLC, appointing an in-state registered agent and paying additional fees or annual report charges.

Before filing, consider:

  • Where the owners live and work
  • Where employees or offices are located
  • Where the business has a physical presence
  • Where most customers and revenue are generated
  • Whether the business owns property in another state
  • Whether the industry has state-specific registration rules

Choose and Protect the LLC Name

The name must generally be distinguishable from other registered business names in the formation state. Most states also require an identifier such as "LLC," "L.L.C." or "Limited Liability Company."

A state business-name filing does not provide the same protection as a federal trademark. The SBA identifies four separate naming concepts:

  • Entity name: Protects the legal business name at the state level
  • Trademark: Can protect a brand nationally
  • DBA or assumed name: Allows the business to operate under another name
  • Domain name: Protects the website address

Search the state business database and the United States Patent and Trademark Office trademark database before committing to a name.

Appoint a Registered Agent

A registered agent receives official legal documents, government notices and service of process for the LLC. The agent generally must have a physical address in the state where the LLC is registered.

The owner can often serve as the registered agent. Many businesses instead use a professional registered agent service for privacy, reliability or multi-state operations.

A registered agent service is different from a business formation service. The registered agent receives official notices. A formation provider may prepare and submit documents for a fee.

File the Formation Document

The LLC becomes legally formed when the state accepts the required filing. Depending on the state, the document may be called:

  • Articles of Organization
  • Certificate of Formation
  • Certificate of Organization

The filing usually requests information such as:

  • LLC name
  • Principal business address
  • Registered agent
  • Management structure
  • Member or organizer information
  • Effective date
  • Business purpose, if required

Filing fees vary by state. Other formation costs may include a name reservation, registered agent service, legal assistance, business licenses and tax registrations. Recurring costs can include annual or biennial reports, franchise taxes and registered agent fees.

Create an Operating Agreement

An operating agreement explains how the LLC will make decisions, distribute profits and handle ownership changes. It is especially useful for a multi-member LLC.

A written agreement should address:

  • Ownership percentages
  • Member contributions
  • Voting rights
  • Manager authority
  • Profit and loss allocations
  • Member compensation
  • Admission of new members
  • Transfer or sale of an ownership interest
  • Deadlock procedures
  • Member withdrawal or death
  • Business dissolution
  • Dispute resolution

The SBA describes an operating agreement as a document that governs the LLC's financial and functional decisions. Even when state law does not require one, a written agreement can reduce disputes and document the separation between the business and its owners.

A single-member LLC should not automatically skip this step. The agreement can document ownership, management authority and the relationship between the owner and the business.

Understand How LLC Taxation Works

An LLC's legal structure and tax classification are separate decisions.

For federal income tax purposes:

  • A domestic single-member LLC is generally treated as a disregarded entity unless it elects corporate taxation.
  • A domestic LLC with two or more members is generally treated as a partnership unless it makes another election.
  • An LLC may elect to be taxed as a C corporation.
  • An eligible LLC may elect S corporation treatment by filing Form 2553.

The IRS does not treat "LLC" as one federal tax category. The number of owners and any tax elections determine how the business reports income.

LLC Versus S Corporation Taxation

An S corporation is a tax election, not a separate state-law entity. An LLC can remain an LLC under state law while electing S corporation treatment for federal tax purposes.

S corporation treatment can add payroll, bookkeeping and tax-return requirements. An owner who performs services for an S corporation generally must receive reasonable compensation before taking non-wage distributions.

Do not make an S corporation election solely because it sounds tax-efficient. The result depends on profit levels, owner compensation, payroll costs, state taxes and administrative costs. A tax professional should model the numbers before filing Form 2553.

Obtain an EIN When Required

An Employer Identification Number is a federal tax identification number issued by the IRS.

An LLC generally needs an EIN when it:

  • Has employees
  • Pays employment or excise taxes
  • Has multiple members
  • Elects corporate tax treatment
  • Needs the number for banking or state tax purposes

A single-member LLC with no employees and no applicable excise tax may not need an EIN solely for federal income tax reporting. The business may still obtain one for a bank account, vendor paperwork or state requirements.

The IRS provides EINs directly and does not charge a fee. Apply through the IRS instead of paying a third-party website.

Register for Licenses, Taxes and Permits

An LLC filing does not give the business permission to conduct every type of activity. Depending on the business and location, you may need:

  • State or local business licenses
  • Professional or occupational licenses
  • Sales tax registration
  • Employer registration
  • Home-occupation approval
  • Health or safety permits
  • Zoning approval
  • Industry-specific registrations

Requirements depend on the business activity, location and relevant government agency. An LLC can be legally formed while still lacking the permits needed to operate.

Separate the Business From Its Owners

An LLC works best when the business operates as a separate entity. After formation:

  • Open a business bank account.
  • Keep business and personal expenses separate.
  • Sign contracts in the LLC's legal name.
  • Maintain accounting records.
  • Document major member decisions.
  • Use the correct legal name on invoices and contracts.
  • File required reports on time.
  • Keep the operating agreement current.

An LLC does not guarantee personal asset protection. Personal guarantees, a member's own wrongful conduct, certain tax liabilities, fraud and failure to maintain separation can create personal exposure. Insurance remains necessary because entity status does not cover every business risk.

Know the Current Beneficial Ownership Reporting Rule

Older LLC formation articles often state that every U.S.-formed LLC must file a Beneficial Ownership Information report with FinCEN. That is no longer the current rule.

As of September 20, 2026, FinCEN's final rule exempts U.S.-formed companies from BOI reporting requirements. The rule became effective on August 14, 2026. Foreign-formed entities registered to conduct business in the United States may still have reporting obligations, depending on their status and available exemptions.

Check FinCEN's current guidance before relying on an older formation checklist or paying a company to submit a BOI report for a domestic LLC.

Can You Form an LLC Yourself?

Yes. A straightforward single-member LLC can often be formed directly through the state's official website.

DIY formation is most practical when:

  • There is one owner.
  • The business has a simple structure.
  • The business operates in one state.
  • No regulated professional service is involved.
  • There are no foreign owners or complex tax issues.
  • The owner understands the state's ongoing requirements.

Legal or tax advice becomes more useful when the LLC has multiple owners, unequal contributions, investors, intellectual property, real estate, foreign ownership, employees or a planned S corporation election.

LLC Formation Checklist

Before filing, confirm that you have:

  • Selected the correct formation state
  • Checked the LLC name with the state
  • Searched for conflicting trademarks
  • Chosen a registered agent
  • Prepared the formation document
  • Agreed on ownership and management
  • Created an operating agreement
  • Obtained an EIN if required or useful
  • Reviewed federal, state and local tax obligations
  • Applied for required licenses and permits
  • Opened a dedicated business bank account
  • Purchased appropriate insurance
  • Calendarized annual reports and tax deadlines

The state filing creates the LLC, but the filing alone does not complete the work. Separate finances, accurate records, tax compliance, licenses and timely state reports help preserve the separation between the LLC and its members.