How to start an LLC: A 7-step guide + FAQ

And if any questions arise along the way, don't worry, as this comprehensive FAQ has the answers you're looking for. Let's get started!

Step 1: Choose and register an LLC name

The first step to starting an LLC is to register and choose a business name for your LLC. The LLC division of your secretary of state office (which may also fall under the corporations division) will have certain rules regarding naming. They'll vary from state to state, but will most likely include these requirements:

• No copycats: You cannot have the same name as another business on file in your state. Your secretary of state’s website will have a method for name searching, and some may have a system for reserving your chosen name for a brief period until you file.
• Be clear about being an LLC: The name of your company must signify its status. It should include “LLC,” “L.L.C.,” “Limited Liability Company,” etc. at the end.
• Avoid prohibited words: Each state has a list of banned words for your LLC name, like “Bank,” “City,” or “Corporation.” While each state has its own naming guidelines, offensive and derogatory words are generally prohibited.

In some states, you may be able to reserve a name temporarily if you aren’t ready to file your LLC paperwork. Additionally, LLCs can operate under a “doing business as” or “DBA” name, allowing you to use a name that is different from your business’s legal name for marketing purposes.

Step 2: Select a registered agent

Most states require that you designate a registered agent, or the “agent for service of process,” to handle legal correspondence for your business. Your registered agent may be you, a member of your LLC, or you can outsource the job to a service that will accept documents on your behalf. According to SCORE, registered agent services cost between $100 and $300 per year. 

Depending on the state your business resides in, there are different requirements for who can be a registered agent. Your LLC officially resides in the state where you file your formation documents. While your LLC isn’t required to have a physical address, your registered agent must have a physical address to accept important documents on behalf of your LLC. Generally speaking, your registered agent must be over 18 years of age and a resident in the state your LLC is established.

Step 3: Draft an LLC operating agreement

While not necessary for filing with the state, an operating agreement is an essential document for every LLC. It establishes the LLC’s operations and policies, ownership interests, and the rights and responsibilities of its members.

Prioritizing an operating agreement at the beginning of the formation process can help guide you and other members of your organization through handling business growth, conflicts, or anything else. 

Keep in mind that an LLC operating agreement is for internal use, and you won’t be required to file it with your state.

Step 4: File articles of organization with your state

Every LLC must prepare articles of organization, which state key components of the company, such as:

• Name.
• Statement of purpose.
• Duration.
• Location.
• Registered agent’s name and address.
• Management style.
• Signature from an organizer.

Once completed, you’ll need to file them with your state. Depending on where you live, the cost to file your articles of organization may vary, with most states ranging from $50 to $150.

Step 5: Set up an EIN and business bank account

An employer identification number (EIN) is like a Social Security number for your business. It allows you to open a business bank account, hire employees, and make business transactions. Your EIN is also necessary for federal tax purposes. To apply for an EIN, you need to fill out and submit an IRS Form SS-4.

If you’re the only person involved in your LLC, you may instead elect to use your Social Security number. Keep in mind that some financial institutions may require that you have an EIN to open a small business bank account. On that note, you’ll also want to set up a business bank account for your LLC. That way, you can easily separate your personal and business finances, allowing you to easily track expenses for your business.

Step 6: Acquire necessary licenses and permits

Another important step in creating an LLC is determining what permits and licenses your LLC needs to operate on a local, state, or federal level. Some common business licenses and permits include:

• General business licenses: A lot of the time, your LLC may require a general business or operating license. Depending on where you live, you may have to acquire this license at a city, county, or state level.
• Industry-specific licenses: Some LLCs may require additional industry-specific licenses. For example, you may have to acquire a liquor license if you're in the restaurant business.
• Sales tax license: This license is usually a requirement for businesses that sell taxable goods or services in states with sales tax.
• DBAs: If you plan on doing business as a name that differs from your business’s legal name, you’ll also need a DBA. As with any other license or permit, DBA requirements can vary depending on where you live.

Step 7: Maintain compliance and file required forms

After starting your small business LLC, you’ll want to follow all the necessary steps to remain compliant with your state’s LLC requirements. You can find this information by visiting your state’s official business filing website. For example, some states may require you to submit an annual report with information regarding your LLC. You may also be required to pay an annual fee to keep your LLC running.

Additionally, you’ll want to file the proper small business tax forms for your LLC. Unlike other business types, LLCs do not have a specific tax classification. This means that single-member LLCs are taxed as sole proprietorships, and multimember LLCs are taxed as partnerships by default, making them pass-through entities. You may also elect to be taxed as a C- or S-corp by filing the appropriate federal tax form with the IRS.

Start your business with confidence

Now that you’ve learned how to start an LLC, it’s time for you to get your business up and running. By implementing accounting software, you can easily track expenses, manage payments, and run custom accounting reports to help you make informed decisions and give you the information you need come tax season.