Key Takeaways

  • To become an LLC, you must choose a unique business name, file formation documents with your state, and pay applicable filing fees.
  • An Operating Agreement is critical to define ownership, management, and profit-sharing terms.
  • LLC owners, or “members,” gain limited liability protection, meaning personal assets are generally shielded from business debts.
  • States may have additional requirements like publication notices or annual reporting.
  • Choosing the right tax classification (default or electing S-Corp status) can have major financial benefits.
  • Obtaining licenses, permits, and EINs are required before legally conducting business.

How to Become an LLC

In recent years forming a business as a Limited Liability Company has been the most popular legal structure for small businesses. The most common reason business owners set up an LLC is for the protection from liability it provides. You can set up an LLC rather simply with it usually taking an hour or less depending on the complexity of your organization's structure. Although setting up an LLC can be simple, the rules surrounding it vary from state to state including having to set up a business name that is in compliance with state rules.

LLC setup will require a few steps that are quick and simple including:

  • Choosing a state-approved name.
  • Filing articles of organization.
  • Paying the filing fee that typically ranges from $100 to $800.
  • Creating an operating agreement which will help outline the rights and responsibility of the members of the LLC.
  • Publishing a notice of your intent to form an LLC, required in certain states.
  • Obtaining the necessary permits and licenses that are required for operation of your business.
  • Registering your business in any other state where business will be performed.

It is important to note that if you are doing business in another state, you will also need to designate a registered agent in every state where you plan to operate your business.

Understanding the Benefits and Drawbacks of Becoming an LLC

Before you decide to become a LLC, it’s important to understand what makes this business structure appealing—and where it may not fit your goals. An LLC combines the personal asset protection of a corporation with the tax simplicity of a sole proprietorship or partnership. This flexibility is a major reason many small business owners choose to form one.

Key Benefits of Forming an LLC include:

  • Limited Liability Protection: Members’ personal assets are generally protected from the company’s debts and legal obligations.
  • Flexible Management: Owners can decide whether to manage the LLC themselves or appoint managers.
  • Pass-Through Taxation: Profits and losses “pass through” to members’ personal tax returns, avoiding corporate-level tax.
  • Less Paperwork: LLCs require fewer formalities than corporations, such as annual meetings or extensive record-keeping.
  • Credibility: Registering as an LLC can make your business appear more professional and trustworthy to customers and lenders.

Potential Drawbacks:

  • Self-Employment Taxes: Members must pay self-employment taxes on profits unless they elect S-Corp taxation.
  • Formation and Maintenance Fees: State filing fees, annual reports, or franchise taxes may apply.
  • Limited Investor Appeal: LLCs cannot issue stock, which may deter outside investors.

These pros and cons help entrepreneurs decide whether forming an LLC is the best structure for their growth goals.

How to Form an LLC: Choose a Name

When choosing a name, you will have to follow the regulations of the state's LLC division which is most often the corporate division combined with the Secretary of State's office. In general, the name of the LLC cannot be the same as an LLC whose name has already been filed. Additionally, the end of the LLC must be tagged with some form of designation such as limited liability company or Limited Company.

Your company names will also be restricted from using certain words that are prohibited by the state including words like bank or insurance, but the rules will vary by each state. The LLC office at the state can let you know any restriction on the name you chose.

It is important to check the availability of your business name before filing the required paperwork, and perform an online search for existing business names to ensure you are not using one that is already filed.

You can search existing business names online in many states to determine whether your proposed LLC name is available. You should always check name availability in your state before filing LLC paperwork. If you would like to reserve your business name, most states will allow this with the proper form and a filing fee, though the length of time and fee amount can vary from state to state.

In addition to following the name rules of the state, you will need to make sure that your name does not violate another company's trademark. When deciding on a name you may also want to determine if a web domain name is available that you will be able to use under that name. After establishing your legal name and ensuring it is available, you will not need to register the name as it will occur when you file your articles of incorporation.

Appointing a Registered Agent

Once you’ve chosen your business name, the next essential step to become a LLC is to appoint a registered agent. This individual or service receives legal and tax documents on behalf of your LLC.

A registered agent must:

  • Have a physical address (not a P.O. Box) in the state where your LLC is registered.
  • Be available during normal business hours.
  • Accept official mail and legal notices on the company’s behalf.

Some business owners act as their own registered agents, but many choose professional registered agent services for privacy and reliability. Most states require the registered agent’s name and address to be listed on the Articles of Organization.

How to Form an LLC: File Articles of Organization

After deciding on your business name, the next step to set up your LLC is filing your Articles of Incorporation with your state's filing office. In certain states, these papers may be referred to as a "Certificates of Formation," or "Certificates of Organization." When filing your papers, you will have to pay a modest filing fee with your state which mostly runs around $100.

It is important to note that some states may also instill a corporate tax that will be required to be paid separately from the filing fees during the process. There are also states like California that will charge additional fees such as an $800 tax that is included on top of the filing fee.

To get the Articles of Organization, you will need to pick them up from the Secretary of State office or download them from their website. The paperwork includes short, simple documents that will not take long to fill out and will include items such as:

  • The LLC's name.
  • Address.
  • Names of the owners/members.
  • An owner's signature.
  • Registered agents name and address.

Professional Help When Forming Your LLC

While it’s possible to form an LLC yourself, legal professionals can help ensure compliance and save time. Mistakes in your Articles of Organization or Operating Agreement could lead to delays or legal complications. Business attorneys can:

  • Draft and review formation documents.
  • Advise on multi-state registration or licensing.
  • Help determine the best tax classification.
  • Ensure your Operating Agreement aligns with state law.

If you need help with how to become a LLC, you can post your legal need on UpCounsel’s marketplace to connect with top-rated business attorneys who specialize in LLC formation and compliance.

Understand Tax Obligations and Annual Requirements

Every LLC must meet ongoing tax and filing obligations after formation. Typically, LLCs enjoy pass-through taxation, where profits flow directly to members’ personal tax returns. However, you can elect to have your LLC taxed as an S-Corporation or C-Corporation by filing IRS Form 2553 or 8832, respectively.

Additionally, most states require:

  • Annual or biennial reports to keep business information current.
  • State-level taxes or franchise fees, like California’s annual $800 minimum tax.
  • Recordkeeping and compliance with business licenses and permits.

Understanding these requirements early helps you maintain good standing and avoid penalties.

Obtain an EIN and Business Licenses

After your LLC is approved, you’ll need to secure an Employer Identification Number (EIN) from the IRS. This nine-digit number acts as your business’s federal tax ID—required for opening a business bank account, hiring employees, and filing federal taxes.

You may also need state and local business licenses or permits depending on your industry and location. Common examples include:

  • Sales tax permits (for retail or eCommerce).
  • Professional licenses (for contractors, medical professionals, etc.).
  • Zoning permits for operating in specific areas.

Check with your state’s business registration office and local agencies to ensure full compliance before launching operations.

Create an Operating Agreement

An Operating Agreement is the internal document that defines how your LLC operates. While not required in every state, it is one of the most important steps when you become a LLC because it helps prevent member disputes.

A strong Operating Agreement should include:

  • Ownership percentages and capital contributions.
  • Member rights and voting procedures.
  • Profit distribution methods.
  • Management structure (member-managed vs. manager-managed).
  • Steps for adding or removing members.
  • Dissolution procedures.

Having a written agreement ensures all members understand their rights and responsibilities, providing clarity and reducing the risk of conflict.

Frequently Asked Questions

  1. How long does it take to become a LLC?
    Most states process LLC filings within a few business days, though some offer expedited services for an additional fee.
  2. What’s the difference between a single-member and multi-member LLC?
    A single-member LLC has one owner, while a multi-member LLC has two or more. Both provide limited liability but differ in tax reporting.
  3. Do I need an attorney to form an LLC?
    Not always, but legal assistance can help ensure your filings and Operating Agreement meet state-specific requirements.
  4. What happens if I don’t file an Operating Agreement?
    Without one, state default laws govern how profits, losses, and responsibilities are divided, which may not match your preferences.
  5. Can my LLC operate in multiple states?
    Yes. You must register as a foreign LLC in each additional state where your business conducts operations.

If you need help with how to become 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.