How to Start an LLC in 6 Steps + Post-Startup Checklist
Starting a Limited Liability Company (LLC) is a popular choice for entrepreneurs looking to protect personal assets while benefiting from flexible management and tax advantages. The LLC structure combines the limited liability of a corporation with the simplicity of a sole proprietorship or partnership.
According to the Small Business Administration (SBA), there are over 34.8 million small businesses in the U.S. in 2024, reflecting a growing interest in entrepreneurship. If you’re considering joining this trend, forming an LLC could be an excellent choice.
This guide will walk you through the essential steps to create an LLC and provide a post-startup checklist to ensure long-term success.
What Is an LLC?
An LLC (Limited Liability Company) is a business entity that protects its owners (known as members) from being personally liable for business debts and legal actions. Unlike sole proprietorships, an LLC creates a legal distinction between personal and business assets, minimizing financial risk.
Benefits of an LLC
- Limited Liability Protection – Members’ personal assets are safeguarded from business liabilities.
- Pass-Through Taxation – Business profits and losses are reported on members’ personal tax returns, avoiding double taxation.
- Flexibility – Members can manage the business themselves or appoint managers.
- Credibility – Having an LLC enhances your business’s reputation with clients and investors.
How to Start an LLC: 6-Step Guide
Step 1: Choose a Business Name
Selecting the right business name is crucial. Follow these guidelines:
- Ensure your name is unique and distinguishable from other registered businesses in your state.
- Include “LLC” or “Limited Liability Company” in the business name.
- Avoid restricted words such as “bank,” “insurance,” or “corporation” unless permitted by state laws.
- Check domain name availability if you plan to build a business website.
- Use your Secretary of State’s online database to check name availability.
Step 2: Select a Registered Agent
A registered agent receives official legal and tax documents on behalf of your LLC. Consider the following when choosing one:
- Must have a physical address in your LLC’s registered state.
- Should be available during normal business hours.
- Can be a professional service, individual, or even an LLC member.
- Some registered agent services offer compliance monitoring and annual report filings.
Step 3: Decide on a Management Structure
LLCs can be member-managed or manager-managed:
- Member-Managed LLC – All members are actively involved in business operations. Best for small businesses.
- Manager-Managed LLC – One or more appointed managers (who may or may not be members) handle daily operations. Ideal for larger businesses or passive investors.
Step 4: Create an LLC Operating Agreement
Although not legally required in all states, an operating agreement is highly recommended. This internal document outlines:
- Ownership percentages.
- Distribution of profits and losses.
- Member roles and responsibilities.
- Voting rights and decision-making procedures.
- Buyout and dissolution terms.
Step 5: File Articles of Organization
Your LLC’s Articles of Organization (or Certificate of Formation) is the official document that establishes your business. Filing requirements vary by state but typically include:
- LLC name and principal business address.
- Names of members or managers.
- Registered agent’s information.
- Business purpose (optional in some states).
- Filing fee (ranges from $50 to $500 depending on the state).
You can file these documents online through your state’s Secretary of State website or via mail.
Step 6: Obtain an Employer Identification Number (EIN)
An EIN is required to open a business bank account, hire employees, and file federal taxes. To get an EIN:
- Visit the IRS website.
- Apply online for free (or submit Form SS-4 by mail or fax).
- Receive your EIN immediately (if applying online).
Post-Startup Checklist
1. Open a Business Bank Account
Separate business and personal finances to:
- Maintain limited liability protection.
- Simplify accounting and tax preparation.
- Build business credit.
2. Obtain Necessary Licenses & Permits
Depending on your industry and location, you may need:
- Local business licenses.
- Health and safety permits.
- Sales tax permits (if selling goods).
- Professional licenses (for specific industries like law, medicine, or finance).
3. Maintain LLC Compliance
Stay compliant by:
- Filing annual reports (state-specific requirement).
- Paying necessary state taxes and fees.
- Keeping records of important business documents.
- Renewing business licenses when required.
Types of LLCs
1. Single-Member LLC (SMLLC)
- Owned by one individual.
- Ideal for freelancers and solo entrepreneurs.
- Offers liability protection with minimal paperwork.
2. Multi-Member LLC
- Owned by two or more members.
- Works similarly to a partnership but with liability protection.
- Members must agree on decision-making structures and profit-sharing.
3. Series LLC
- Allows multiple sub-LLCs under a single umbrella.
- Ideal for real estate investors or businesses with multiple divisions.
4. Professional LLC (PLLC)
- Designed for licensed professionals like doctors, lawyers, and accountants.
- May require special state approval.
5. Low-Profit LLC (L3C)
- Focuses on social or charitable missions while still operating as a for-profit business.
- Often eligible for certain grants and funding opportunities.
Pros and Cons of an LLC
| Pros | Cons |
|---|---|
| Shields personal assets from business liabilities | May have higher state filing fees compared to sole proprietorships |
| Avoids double taxation | Members must pay self-employment taxes |
| Provides flexible management structure | Harder to raise investment capital compared to corporations |
Conclusion
Forming an LLC is a straightforward yet impactful step toward securing your business’s future. It provides liability protection, tax flexibility, and operational ease, making it an attractive option for entrepreneurs.
Use this guide to navigate the LLC formation process efficiently. Once your LLC is established, stay compliant with legal requirements, obtain necessary licenses, and open a business bank account for financial separation.
Want to grow your business further? Consider building a website! Check out our article on website planning to create a strong online presence for your LLC.
Frequently Asked Questions (FAQs)
How much does it cost to start an LLC?
LLC formation fees vary by state, ranging from $50 to $500. Additional costs may include registered agent fees and licensing expenses.
Do I need an accountant for my LLC?
While not required, hiring an accountant can help manage bookkeeping, tax planning, and financial strategy, ensuring compliance and efficiency.
How much money should I keep in my LLC?
It’s recommended to have 3 to 6 months’ worth of operating expenses saved as a financial cushion for emergencies.
