How to start an LLC: A 7-step guide

Step 1: Choose and register an LLC name

The first step to starting an LLC is to choose a business name and register it with your state. Each state has its own naming rules, usually managed by the LLC or corporations division of the Secretary of State’s office. 

While requirements vary, most states follow these general guidelines:

• No duplicate names: Your LLC name must be unique and not already registered in your state. Most Secretary of State websites have a search tool to check availability, and some allow you to reserve a name briefly before filing.
• Include LLC in the name: Your business name must indicate its LLC status by including “LLC,” “L.L.C.,” or “Limited Liability Company.”
• Follow naming restrictions: States prohibit certain words like “Bank,” “City,” or “Corporation.” Offensive or misleading terms are also generally not allowed.

If you’re not ready to file your LLC paperwork, some states let you temporarily reserve a name. You can also register a doing business as (DBA) name, allowing you to operate under a different name for branding and marketing purposes.

While the LLC structure is common in the United States, other countries like the United Kingdom have different legal structures for business formation, such as private limited companies (Ltd.). If you plan to operate internationally, you’ll want to understand the business laws in each country.

Step 2: Select a registered agent

Most states require LLCs to designate a registered agent—also known as an agent for service of process—to receive legal documents and official notices on behalf of the business. This can be:

• You or another member of your LLC
• A professional registered agent service

Your registered agent must meet certain state requirements. While your LLC doesn’t need a physical address, the registered agent must have one in the state where the LLC is filed. They must also be at least 18 years old and a resident of that state.

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 for your LLC

An employer identification number (EIN) is like a Social Security number for your business, which you can apply for by submitting IRS Form SS-4. You’ll need this number when hiring employees, filing taxes, and making business transactions. 

If you’re the only owner of your LLC, you may be able to use your Social Security number instead. However, some banks require an EIN to open a business bank account. Having a separate account for your LLC helps keep personal and business finances separate, making it easier to track expenses and manage cash flow.

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. 

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.

Some LLCs may also require additional industry-specific licenses. For example, you may have to acquire a liquor license if you're in the restaurant business.

The sales tax license is usually a requirement for businesses that sell taxable goods or services in states with sales tax. Additionally, if you plan on doing business as a name that differs from your business’s legal name, you’ll 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 LLC, staying compliant with your state’s requirements is important. Each state has its own rules, so check your state’s official business filing website for specific details. 

For example, some states require an annual report with updated LLC information, and you may need to pay an annual fee to keep your LLC active.

You’ll also need to file the appropriate tax forms for your LLC. These structures don’t have a fixed tax classification, so:

• Single-member LLCs are taxed like sole proprietorships
• Multi-member LLCs are taxed as partnerships by default

We compare single vs multi-member LLCs in greater detail later in the post. 

You can also elect to be taxed as an S-corp or C-corp by filing the necessary forms with the IRS. Staying on top of these filings helps ensure your LLC remains in good standing. Learn more about the difference between an S-corp and an LLC.

4 things to consider when opening an LLC

Starting an (LLC offers flexibility and liability protection, but there are key factors to consider as you register your business. From ownership rules to tax classifications, understanding these aspects can help you choose the right structure for your business.

1. Ownership rules

Individuals, corporations, foreign entities, or even other LLCs can all own an LLC. However, ownership rules vary, with some states imposing restrictions on certain entity types or industries. Since this could impact your eligibility, it’s important to check local regulations before forming your business. 

For example, a trust can own an LLC in some states, which can be a useful option for estate planning or asset protection. 

2. Single-member vs. multi-member

The number of owners in an LLC affects its management, taxation, and legal obligations. Choosing between a single-member or multi-member structure depends on factors like control preferences, tax implications, and long-term business goals.

LLCs can have one or multiple owners, each with different implications:

• Single-member LLC: Owned by one person; simpler to manage and taxed like a sole proprietorship.
• Multi-member LLC: Owned by two or more people; taxed as a partnership by default.

3. Management structures

How your LLC is managed determines who makes key business decisions and oversees daily operations. The right management structure depends on the level of involvement you want as an owner and whether you prefer direct control or delegation.

LLCs can be structured in two ways:

• Member-managed: All owners (members) actively participate in daily business operations, making this structure common for small businesses and startups.
• Manager-managed: Members appoint a manager—either an owner or an external party—to handle operations. This setup is ideal for passive investors or businesses with multiple stakeholders.

Unlike a corporation, which is more complex to manage and has stricter governance rules, an LLC provides flexibility and fewer formalities.

4. Tax classifications

Your LLC’s tax classification affects your income, compliance requirements, and overall financial strategy.

By default, LLCs benefit from pass-through taxation, meaning profits flow directly to owners' tax returns, avoiding corporate taxes. However, you can elect other classifications:

• S-corp election: Allows owners to pay themselves a salary while taking additional profits as distributions, reducing self-employment taxes.
• C-corp election: LLCs are taxed as corporations, which may be beneficial for businesses looking to attract investors or reinvest profits.

Choosing the right LLC structure and tax classification can impact your financial and operational success, so consider consulting a legal or tax professional for guidance.

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. With accounting software like QuickBooks, you can easily track expenses, manage payments, and run custom accounting reports. Make informed decisions and get the information you need come tax season.