Key Takeaways

  • LLC requirements vary significantly by state, including naming rules, filing fees, annual report obligations, and publication requirements.
  • Standard LLC rules include minimal formation paperwork, flexible ownership, and liability protection for members.
  • Some states mandate written operating agreements; others allow oral or implied agreements.
  • Foreign LLCs must register in states where they do business outside their state of formation.
  • Common state-specific requirements include registered agent designation, filing Articles of Organization, and paying initial/annual fees.
  • Additional obligations may include state-specific business licenses, tax registrations, and franchise taxes.

Since LLC rules vary by state, you should check the Secretary of State or other business gateway website in the state where you plan to form your LLC. However, there are several rules that apply no matter what state you are in. 

Why Form an LLC?

Establishing your business as an LLC lets you separate your personal assets from your business, thereby protecting your personal property from business consequences. It also lets you avoid double taxation which takes place with corporations. It is a simple structure for businesses, it is easy to create, and it has many advantages.

Standard Rules for LLCs

There are several rules that are standard and apply to LLCs no matter which state they are formed in:

  • LLCs only require one member to get started, which allows them to do so without first creating a board of directors or having a partner.
  • Forming and maintaining an LLC requires much less paperwork than forming a corporation does.
  • It's usually best to form your LLC in the state where you live, but there may be circumstances under which it's best to form it in a different state
  • The company has to be dissolved if an LLC member chooses to leave, then the remaining members can form a new LLC
  • Articles of organization are required for LLC formation.
  • Any LLC that plans to hire employees must obtain a federal tax ID number, or Employer Identification Number (EIN) from the IRS.

State-Specific LLC Requirements

While certain rules apply to LLCs nationwide, each state imposes its own regulations that can significantly impact formation and ongoing compliance. Common variations include:

  • Filing Fees and Processing Times: Initial filing fees can range from under $50 to over $500. Processing times also vary, with some states offering expedited services for an additional fee.
  • Naming Rules: Most states require the LLC name to be unique and include a designator like "LLC" or "Limited Liability Company." Certain words (e.g., “Bank,” “Insurance”) may require special approval.
  • Registered Agent Requirements: All states require an LLC to designate a registered agent with a physical address in the state.
  • Annual/Biennial Reports: Many states require periodic reports to update ownership and contact information, often with a filing fee.
  • Publication Requirements: A few states, like New York and Arizona, require newly formed LLCs to publish a notice in local newspapers for a set period.
  • Additional Licenses/Permits: Depending on the industry and location, you may need state or local business licenses before operating.

Before forming an LLC, review the Secretary of State (or equivalent agency) resources for your state to ensure compliance with all formation and maintenance requirements.

LLC Taxation Concerns

LLCs that have just one member file taxes as a sole proprietor. If the LLC has more than one member, each member files their own tax returns using Form 1065 to report profit and loss. LLCs can also elect to file taxes as a corporation, in which case a corporation tax return must be filed. One of the few disadvantages of the LLC structure is the self-employment tax that its members need to pay. 

LLC Liability Protection

Liability protection for members is one of the primary reasons for forming an LLC. Members are only risking the assets they contribute to the business. Their personal property, bank accounts, etc. are not subject to seizure in the event of a business lawsuit or outstanding debts. 

Also, unlike a corporation, LLC members may share business profits however they want, regardless of what percentage each member has contributed to the business assets. 

State Requirements For Operating Agreements

An operating agreement is always a useful document, even if it is not required by the state where your LLC is formed. However, in certain states, operating agreements are required by law. These include:

  • California
  • Delaware
  • Maine
  • Missouri
  • New York

An operating agreement prevents future disagreements by laying out what responsibilities each member has and how profits and losses will be split. It also helps protect the limited liability status of your business. It can save you a lot of trouble in future years. Here are the requirements of the above states:

California: Although an operating agreement is required in California, it may be either oral or written. Written agreements along with any amendments it may have must be kept with the other records of the company.

Maine: Maine requires LLCs to create an operating agreement, but it may be done at any time — before, during, or after filing. It does not need to be written; it can be oral or even implied. We advise putting it in writing, however, to avoid future problems.

Delaware: Delaware's requirements for operating agreements are like Maine's. It can be created before, during, or after the LLC is formed and can also be oral or implied as well as written in a document.

Missouri: Missouri LLCs also do not need to have written operating agreements, but they do need to have at least an oral agreement that covers everything related to business conduct and powers, duties, and rights of its members, agents, managers, and employees.

New York: In New York, LLCs are required to have an operating agreement that is written, and includes information on the LLC's business and responsibilities of its members along with their preferences, limitations, and rights. 

Foreign LLCs

The term “foreign LLC” refers to an LLC that was formed in a different state in which it is operating. A domestic LLC is one that was formed in the same state where it operates. In order for a foreign LLC or corporation to operate in another state, there may be certain requirements it needs to meet.

Key Steps to Form an LLC in Your State

Although the process varies by state, forming an LLC generally involves the following steps:

  1. Choose a Compliant Name: Ensure your LLC name meets state naming rules and is distinguishable from other registered businesses.
  2. Appoint a Registered Agent: This individual or business entity receives legal documents and must have a physical address in the state.
  3. File Articles of Organization: Submit this formation document to the appropriate state agency, typically the Secretary of State, along with the required filing fee.
  4. Create an Operating Agreement: Even if not required, a written agreement helps define member roles, profit distribution, and operational procedures.
  5. Obtain an EIN: Apply for an Employer Identification Number from the IRS for tax and banking purposes.
  6. Comply with State-Specific Obligations: This may include publication requirements, initial reports, or franchise tax registration.
  7. Maintain Compliance: File annual or biennial reports, pay any state taxes or fees, and update state records when changes occur.

Frequently Asked Questions

  1. Do all states require an LLC to have an operating agreement?
    No. Some states, like California and New York, require operating agreements, while others allow them to be oral or implied.
  2. Which states require LLC publication notices?
    New York, Arizona, and Nebraska have publication requirements, typically involving newspaper announcements.
  3. How much does it cost to form an LLC?
    Costs vary by state, ranging from under $50 to over $500, plus possible annual fees.
  4. Do I need a registered agent in the state where I form my LLC?
    Yes. All states require a registered agent with a physical address in the state.
  5. Can I operate my LLC in multiple states?
    Yes, but you must register as a foreign LLC in each additional state where you conduct business.

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