1. Forming an LLC on Your Own
2. Use a Service to Form Your LLC
3. Form Your LLC in Another State
4. Common Mistakes to Avoid

Are you looking for the best way to start an LLC without paying more than you need to? Many new business owners need to watch costs while taking care of this important first step in forming a new business. Considering you haven't made any money yet from your venture, it's especially important to be cost-conscious.

Forming an LLC on Your Own

You can form an LLC by filing documents yourself. Depending on the filing fees your state charges, doing this may save you a lot of money. In most states, you need to file the articles of organization, although individual states may have different names for it. Usually, you can obtain the forms online, and in some states, you can file online as well. Articles of organization forms are not difficult to fill out, nor is the filing process complicated.

Use a Service to Form Your LLC

If you don't want to deal with the process of filing the LLC documents yourself, you can hire an incorporation service. Many businesses specialize in LLC or corporation formation, and you can contact them online. Just keep in mind that although their services can be helpful, you should not rely on them for legal advice.

Form Your LLC in Another State

Some states charge lower fees than other states for LLC formation, so you might also choose to form your LLC in another state. However, the money you save on filing fees might be overshadowed by other costs you could incur in the process. If most of your customers will be local, you will probably need to register to do business within your state as well, and that usually means paying additional fees and filing yet more paperwork.

Taxes are another consideration when it comes to forming your LLC in a different state. Along with income tax, you will deal with sales tax, employment tax, property tax, franchise tax, and so on. Keeping track of more than one state's tax requirements can be overwhelming, so if you do go this route, experts recommend hiring a tax professional to keep it all straight and make money-saving recommendations.

Common Mistakes to Avoid

One mistake business owners make is setting up the wrong entity for their business. The most common types of business structures in the U.S. are LLC, S corporation, and C corporation. Picking the right one is important because they have different features, advantages, and disadvantages.

  • Small businesses that want protection from liabilities but would also like to keep formality and paperwork to a minimum usually should choose to become an LLC.
  • Small businesses that can qualify under the strict rules for forming an S corporation can enjoy additional benefits and also maintain a pass-through status for tax purposes.
  • Small businesses and freelancers rarely choose to file as a C corporation, because it files its own tax report and has complex operating rules. Only consider this if you plan to seek venture capital funding or if a professional tax adviser feels it's best for your unique situation.

Another mistake some business owners make when setting up a new LLC is choosing to register in the wrong state. Although in most cases it is better to form your LLC in the state where you plan to operate the business, Delaware and Nevada are extremely popular for this purpose. Businesses formed in Delaware enjoy flexible, pro-business policies. Nevada has extremely low filing fees and fewer taxes.

However, the benefits of forming a business in a state other than your own home state are more applicable to larger businesses. The general rule is that you're better off incorporating in the state where your business is physically located if your LLC has fewer than five owners. Otherwise, it's not worth the hassle and expense, 

Forming your business without having the licenses required to operate in your state or local city is yet another mistake to avoid. Even freelancers may need licenses to legally operate a business. Therefore, one of the first things to do is check with your local city or county to see what requirements there are if any. Neglecting this step can result in having to pay big fines.

If you need more information or help with the best way to start an LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.