How to Start an LLC in the USA (2027 Guide)

There’s a specific moment a lot of business owners hit: the side hustle is making real money, a client wants an invoice under a business name instead of your personal one, or you just can’t shake the discomfort of your personal savings being one lawsuit away from a client dispute. That’s usually the moment “should I form an LLC?” stops being a hypothetical question.

The good news: forming an LLC is genuinely one of the more approachable parts of running a business. Most states let you do it entirely online, the paperwork itself is short, and for the vast majority of small business owners it takes well under an hour of actual form-filling — even though the state’s processing time can stretch longer. This guide walks through exactly what an LLC is, the full step-by-step process, real costs by state, and the mistakes that trip up first-timers most often. (For more guides on setting up and running a business, visit our business hub.)

What Is an LLC, Actually?

An LLC, or Limited Liability Company, is a legal structure that keeps the business and the owner’s assets separate. This is the core principle of an LLC since it guarantees that personal property could be used to pay debts or settle lawsuits against the business.

An LLC has to be formed in accordance with the state laws, which is why both forming and running an LLC may differ from state to state. Another important benefit of an LLC is the absence of double taxation, which means that a business entity is not obliged to pay taxes on its income since it is taxed only on the owner’s personal income tax return.

Why People Choose an LLC Over Other Structures

• Personal asset protection — the core reason most people form one in the first place.
• Simpler taxation than a corporation — pass-through taxation by default, with the option to elect S-Corp tax treatment later if it makes financial sense.
• Credibility — invoicing and contracting as “Smith Consulting LLC” reads differently to clients and vendors than doing it under your own name.
• Flexibility — fewer ongoing formalities than a corporation (no mandatory board meetings or extensive corporate records in most states).

It’s not the right structure for absolutely everyone — very early-stage side projects with minimal risk sometimes stay as sole proprietorships until there’s real revenue or real liability exposure to protect against. But for anyone taking on clients, holding a contract, or carrying any meaningful risk, an LLC is usually worth the modest cost.

The 7 Steps to Start an LLC

Step 1: Choose Your State

For most small business owners, the answer is simple: form your LLC in the state where you actually live and do business. Forming in a different state (Delaware and Wyoming get suggested online constantly) rarely makes sense for a small, local business — you’d still need to register as a “foreign LLC” in your home state anyway, meaning you’d pay filing fees in two states instead of one.

The out-of-state strategy generally only makes sense for specific situations — like a company planning to raise venture capital, where Delaware’s well-established corporate law offers real advantages. If that’s not your situation, stick with your home state.

Step 2: Choose and Check Your LLC Name

Your name needs to be unique within your state’s business registry and typically must include an LLC designator (“LLC,” “L.L.C.,” or “Limited Liability Company”). Before you fall in love with a name:

• [ ] Search your Secretary of State’s business name database to confirm it’s available.
• [ ] Check that the matching domain name and social handles are reasonably available.
• [ ] Do a quick trademark search to avoid stepping on an existing registered brand.
• [ ] Avoid restricted words (like “Bank” or “Insurance”) that trigger extra licensing requirements in most states.

Step 3: Appoint a Registered Agent

Every LLC needs a registered agent — a person or service authorized to receive legal and state documents on the business’s behalf, with a physical address in the state of formation (a P.O. box doesn’t qualify). You can serve as your own registered agent if you have a physical address in the state and are comfortable having that address on public record, or you can pay a registered agent service (typically $50–$150/year) for privacy and reliability, especially useful if you work from home and don’t want your home address publicly listed.

Step 4: File Your Articles of Organization

This is the actual formation document — called Articles of Organization in most states, but sometimes Certificate of Formation or Certificate of Organization depending on the state. This filing is what officially establishes your LLC as a legal entity. It typically asks for basic information: your LLC’s name, address, registered agent, and management structure. Most states let you file this online directly through the Secretary of State’s website, and you’ll typically pay the state filing fee at the same time.

Step 5: Write an Operating Agreement

An operating agreement is an internal document defining how your LLC is run — ownership percentages, how profits are split, decision-making authority, and what happens if a member wants to leave. Most states don’t legally require one, but a handful — including New York, California, Missouri, Maine, and Delaware — do. Even where it’s optional, it’s worth doing: without one, your LLC defaults to your state’s generic rules, which may not match how you and any co-owners actually intend to run things.

One decision to make here: member-managed vs. manager-managed. In a member-managed LLC (the default, and the right choice for most small businesses), all owners participate directly in running the business. In a manager-managed LLC, designated managers handle operations while other members stay passive — more relevant if you have investors or silent partners who aren’t involved in daily operations.

Step 6: Get an EIN from the IRS

An Employer Identification Number (EIN) is essentially a Social Security number for your business — required to open a business bank account, hire employees, and file business taxes. You can apply directly on the IRS website, and it’s completely free no matter which state you’re in. Applying online typically gets you your EIN immediately; applying by fax or mail can take weeks, so online is worth it for the speed alone.

Step 7: Open a Business Bank Account

This step is easy to skip and genuinely shouldn’t be. Keeping business and personal finances in separate accounts isn’t just good bookkeeping — it’s what keeps your liability protection intact. Courts can disregard your LLC’s liability shield (“piercing the corporate veil”) if you’ve been commingling personal and business funds, which defeats the entire purpose of forming the LLC in the first place. Bring your EIN, Articles of Organization, and operating agreement to open the account.

What Does It Actually Cost?

Costs vary significantly by state, and this is usually the biggest source of confusion for first-timers.

A few concrete reference points: Montana is one of the cheapest states to file in, around $35, while Massachusetts sits at the higher end around $500. On the ongoing side, states differ enormously too — New Mexico charges no annual renewal fee at all, while California requires an $800 minimum annual franchise tax regardless of how much the business actually earns, which is worth knowing before choosing to form there if you have flexibility.

Realistic total first-year cost: most LLCs land somewhere between $50 and a few hundred dollars for the first year in the majority of states, with a small number of higher-fee states pushing that closer to $1,000+ once filing and first-year annual fees are combined.

How Long Does It Take?

Timelines vary by state processing speed:

• Fastest states: same-day to a few business days for online filings
• Typical range: roughly 1–3 weeks for standard processing
• Slowest states: states with publication requirements, like New York, can stretch to 4–6 weeks total once every step is factored in

Most states also offer expedited processing for an extra fee if you need your LLC formed quickly — worth it if you have a client contract or deadline waiting on it.

Taxes: What Changes Once You’re an LLC

By default, a single-member LLC is taxed as a “disregarded entity” — profits and losses flow straight through to your personal tax return, and you’ll owe self-employment tax (Social Security and Medicare, currently 15.3% combined) on your net business income, since you’re both the employer and employee in the eyes of the IRS.

Once your LLC is generating consistent, meaningful profit, it’s worth discussing an S-Corp tax election with an accountant. This lets you pay yourself a reasonable salary (subject to payroll tax) and take remaining profits as distributions, which aren’t subject to self-employment tax — a strategy that can produce real savings once profits reach a meaningful level, though it adds payroll administration complexity, so it’s not worth it for very early-stage businesses.

This is genuinely one area worth a real conversation with a tax professional rather than relying on general guidance — the right structure depends on your specific income level and state.

Common Mistakes First-Time LLC Owners Make

• Forming in the “wrong” state for the wrong reasons. Chasing Delaware’s reputation for a small local business usually just means paying two states’ fees instead of one, with no real benefit to show for it.
• Skipping the operating agreement. Even where it’s optional, operating without one leaves you defaulting to generic state rules that may not reflect how you actually intend to run things — especially risky with multiple owners.
• Commingling personal and business funds. This is the single most common way business owners accidentally undermine the liability protection they formed the LLC to get in the first place.
• Missing the annual report deadline. Every state that requires one enforces it — miss it and you risk late fees or, eventually, involuntary dissolution of your LLC.
• Assuming an LLC handles every legal need. Forming an LLC doesn’t automatically cover business licenses, permits, or industry-specific registrations — those are separate requirements layered on top, and they vary by city and industry.

Converting an Existing Business to an LLC

If you’re running a sole proprietorship and want to change your business structure, the process is pretty simple: You’ll have to file Articles of Organization with your state, get a new Employer Identification Number (EIN), open a business bank account, and transfer all existing engagements and agreements to the new company. As a rule of thumb, this entire process should take only a few days, although it’s still a good idea to let your clients, suppliers, and bank know about the fact that you have made the shift to an LLC so that the payments would go to the right place in the future.

Frequently Asked Questions

Do I need a lawyer to form an LLC?

Not for a straightforward, single-state, single-owner LLC — most people handle it themselves through their Secretary of State’s website or an online formation service. A lawyer becomes more valuable for complex ownership structures, multiple partners with unequal stakes, or industries with heavy regulatory requirements.

Should I form my LLC in Delaware or Wyoming even if I don’t live there?

Usually not, for a small local business. You’d still need to register as a foreign LLC in your home state, meaning you pay fees in two states for no real added benefit. This strategy mainly makes sense for businesses planning to raise venture capital.

What’s the difference between an LLC and a sole proprietorship?

A sole proprietorship has zero legal separation between you and your business — your personal assets are fully exposed to business liabilities. An LLC creates that separation. The tradeoff is a modest filing cost and some ongoing compliance (annual reports, in most states) that a sole proprietorship doesn’t require.

Can I be my own registered agent?

Yes, as long as you have a physical address (not a P.O. box) in the state of formation and are comfortable with that address becoming part of the public record. Many owners who work from home opt for a paid registered agent service instead, mainly for privacy.

How much does it really cost to maintain an LLC each year?

Most LLC owners spend somewhere between $100 and $500 a year on ongoing costs — annual report fees and, if used, a registered agent service — though this varies significantly by state, with California’s $800 annual franchise tax as a notable high-end exception.

Final Thoughts

Forming an LLC isn’t complicated, but it does reward doing it deliberately rather than rushing: pick your home state unless you have a specific reason not to, get the operating agreement in writing even if your state doesn’t require it, keep business and personal finances strictly separate from day one, and mark your annual report deadline somewhere you’ll actually see it. Handle those basics and the liability protection you’re forming the LLC for stays intact exactly when you need it.

Need help with the next steps — operating agreements, EIN applications, or state-specific filing links? Check our full library of business formation resources to keep moving.