Key Takeaways

  • Anyone over 18—including individuals, other businesses, foreign owners, and non-residents—can typically form an LLC in the U.S.
  • LLC formation requires filing Articles of Organization, appointing a registered agent, and paying state filing fees.
  • LLC owners (“members”) can include individuals, corporations, other LLCs, trusts, and foreign entities.
  • Residency or citizenship is not required in most states, but a registered agent with a physical address in the formation state is.
  • LLCs offer liability protection, flexible taxation options, and simple management structures that appeal to small business owners and startups.
  • Ongoing compliance—such as annual reports, fees, and maintaining a registered agent—is essential to keep an LLC in good standing.

Who can form an LLC? A small business owner who drafts an articles of organization and pays the filing fee can create an LLC. Creating an LLC is a big step and comes with various benefits and drawbacks, depending on your business goals. With that, you have other options available aside from creating an LLC, such as registering a corporate entity. However, LLCs come with fewer formalities, and you are free to tailor an LLC management structure how you see fit.

Managing a business is a time-consuming process, and it was one of the reasons why the LLC was created in the 1970s. The LLC structure was designed to give small business owners the flexibility to operate a business without extensive requirements, as is the case with a corporate entity.

LLC Creation Process

Most states only require a fee and an articles of organization to register an LLC. Moreover, you may have the option of filing online, including the filing of annual documents. If you own a partnership or sole proprietorship, you should consider transitioning into an LLC because it gives you more legal protections, and you can still retain the small business aspect of your operations.

Who Is Eligible to Form an LLC?

One of the most common questions entrepreneurs ask is “who can form an LLC?” The good news is that U.S. law makes LLC formation widely accessible. In most states, any person or legal entity over 18 years of age can establish a limited liability company. This includes:

  • Individuals – U.S. citizens, permanent residents, and non-citizens.
  • Other businesses – Corporations, partnerships, and other LLCs can serve as members.
  • Trusts or estates – These entities can own membership interests.
  • Foreign individuals or entities – There’s generally no requirement for U.S. citizenship or residency to form or own an LLC.

While eligibility is broad, there are a few requirements to keep in mind:

  • Registered Agent: Every LLC must designate a registered agent with a physical address in the state of formation. This agent receives legal and tax documents on behalf of the company.
  • Age and Capacity: Organizers must be at least 18 and legally capable of entering into contracts.
  • State-Specific Rules: Some states require a business license or industry-specific approval before formation, especially for professional services like law, medicine, or engineering.

LLC Definition

An LLC is a legal entity that gives owners various limited protections in the same manner as a corporation. LLCs resemble partnerships, but the personal assets of owners are protected from court judgments in the event of litigation.

  • Note: LLCs are most notable for pass-through taxation. Pass-through taxation occurs when profits and losses flow from the business entity to individual members to file on their personal tax returns. LLCs do not pay business income taxes.

Regarding sole-member LLCs, pass-through taxation means that he or she will submit a Schedule SE for self-employment taxation and a Schedule C to record deductions and revenues. For multi-member LLCs, matters can get more complex. For instance, you need to file a partnership-based return known as 1065, including a separate K-1 for each LLC member to use on their individual tax returns. The K-1 form shows the following:

  • Profit allocations
  • Credits
  • Losses

The pass-through feature also allows members to deduct losses against other income sources. For individuals holding liens against businesses cannot seize personal assets of the members in most states. With that, LLC legal safeguards do not apply to illegalities committed by the owners, and courts can remove protections in cases of negligence or fraud.

Types of LLC Members

LLC owners are called members, and there’s no limit on how many a company can have. Depending on how you plan to structure your business, your LLC can include:

  • Single-member LLCs: Owned and managed by one person or entity, ideal for freelancers, consultants, and sole proprietors transitioning from informal business structures.
  • Multi-member LLCs: Owned by two or more members, which can include individuals, companies, or a mix of both.
  • Member-managed LLCs: All members share responsibility for day-to-day operations.
  • Manager-managed LLCs: One or more members (or an outside party) are appointed to manage daily affairs, freeing others to act as passive investors.

This flexibility allows entrepreneurs to customize ownership and control while preserving liability protection and tax benefits.

LLC Taxation

Unlike corporations, LLCs are not considered a distinct legal entity and cannot be taxed. Therefore, owners must choose the appropriate taxation for their business. For instance, LLC owners can also choose to be taxed as either an S or C corporation.

Choosing a C corp tax structure means that the LLC would pay business income taxes in the same way as a standard corporation. Choosing an S corp tax method affords owners the same pass-through taxation method, and owners can use the S corp system to reduce his or her self-employment tax balance.

  • Note: An S corp is a tax-based entity and not a separate legal corporate entity. Rather, it is a tax-based designation from the IRS, and LLC owners must submit Form 2553 to the IRS if they wish to obtain the S corp classification.

When it comes to tax benefits, LLCs can be placed in living trusts, which provides various tax advantages and allows for efficient estate planning. However, such a topic can get highly complicated, and you should talk with an attorney before embarking on such a strategy.

LLC Benefits

LLCs yield a wide array of benefits to LLC owners. For instance, LLCs permit an unlimited amount of owners, and there are no restrictions on who can be an owner. The most notable benefit is choosing a tax classification, especially a corporate designation. Choosing a corporate designation makes sense for two primary reasons:

  • The business is involved in high-risk activity that could open it to potential lawsuits, or the piling of large debts
  • LLC owners have a great deal of personal assets that they want to safeguard

Limitations and Considerations Before Forming an LLC

While forming an LLC is straightforward, there are key considerations to weigh before filing:

  • Ongoing Costs: Most states require annual reports and fees to maintain good standing.
  • Compliance Obligations: LLCs must update state records if they change their registered agent, business address, or management structure.
  • Professional Restrictions: Certain professions (like law, medicine, and accounting) may require forming a professional LLC (PLLC) and obtaining state-specific licenses.
  • Self-Employment Taxes: Unless electing S-corp status, members pay self-employment tax on all business profits.
  • Foreign Owners: Non-U.S. owners must obtain an Individual Taxpayer Identification Number (ITIN) and comply with IRS tax reporting requirements.

Understanding these potential hurdles ensures you’re prepared for the responsibilities that come with LLC ownership.

LLC Fees

States have varying legal requirements regarding LLC registration. Certain states charge annual taxes and fees that could be a hindrance to business owners. For instance, California charges an $800 yearly tax, in addition to annual fees ranging from $900 to $11,760 based on annual income surpassing $250,000.

Compliance and Maintenance Requirements

Forming an LLC is only the first step—ongoing compliance is critical to keeping liability protections intact. After formation, most states require LLCs to:

  • File annual or biennial reports and pay associated fees.
  • Maintain a registered agent and update information promptly if it changes.
  • Keep accurate internal records, such as meeting minutes and operating agreements, even if not legally required.
  • Renew business licenses and permits on time to avoid penalties.
  • File federal, state, and local taxes according to the company’s elected tax classification.

Failing to meet these requirements can result in fines, loss of good standing, or even dissolution of the LLC.

Frequently Asked Questions

  1. Can a non-U.S. citizen form an LLC in the United States?
    Yes. Most states allow foreign individuals and entities to form and own an LLC, provided they appoint a registered agent with a U.S. address.
  2. Can a corporation or another LLC be a member?
    Absolutely. Businesses, trusts, and even other LLCs can own membership interests, either alone or with individuals.
  3. Is there a minimum age requirement to form an LLC?
    Yes. You must be at least 18 years old and legally able to enter into contracts to form an LLC.
  4. Are there restrictions on the type of business an LLC can conduct?
    Generally, no. However, some professional services (e.g., legal, medical, or accounting practices) may require a PLLC and state-issued licenses.
  5. What happens if I fail to file annual reports or pay fees?
    Your LLC could face penalties, lose its good standing, or be administratively dissolved by the state, so it’s vital to stay compliant.

Who can form an LLC? If you have more questions on LLCs, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers will give you more information on the LLC filing process, including the necessary maintenance procedures you need to be aware of in your state. In addition, they will help you determine if an LLC is the right choice for your business goals.