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Starting a limited liability company can seem like a complex and confusing task for new business owners. However, the process can be quite simple once you know how formation works in the state where you register.
In this article, the MarketWatch Guides team provides a walkthrough of the LLC formation process. You’ll also learn about the costs of registration and other important considerations, as well as how a top LLC service can help you through each step.
The listings that appear are from companies from which this website may receive compensation, which may impact how, where and in what order products appear. Not all companies, products or offers were reviewed in connection with this listing.
5 Steps of LLC Formation
LLC formation is done at the state level. Although each state imposes its own specific guidelines, the steps for forming an LLC are similar. You’ll typically name your LLC, select a registered agent and submit formation paperwork. It’s also common to apply for a federal employment identification number and draft an operating agreement. We’ll outline each step in more detail.
1. Name Your LLC
The first step is to choose a name for your LLC. Your state may require your LLC’s name to give the public an accurate idea of what kind of service or product you offer. At the very least, your name can’t be misleading or too similar to another business’s name. Here are some of the requirements that generally apply:
Naming Requirements
Your LLC name must be distinguishable from other active businesses in the state, meaning it can’t be identical or too similar to an active business’s name. Most states have a database that lets you search for business names that are currently in use. For example, here’s the Illinois database.
In every state, your formal LLC name must contain an indicator that your business is an LLC. While some states have specific requirements, this usually means one of the following must be included in the business name that’s on file with the state:
- Limited liability company
- Limited
- Ltd.
- L.L.C.
- LLC
Generally, your LLC’s name can’t contain words that mislead the public about the type of services or products you offer. Also, the name can’t contain words that imply you’re affiliated with the government, such as “Department of Treasury” or “FBI.”
Name Reservation
If you’re not ready to start your LLC yet, you can reserve your chosen name so that no one else can take it. To reserve a business name, you’ll fill out the appropriate form with your state and pay a filing fee that typically ranges from $10 to $50. You’ll reserve your name for a specific period, typically 90 days to one year. Depending on the state, you may be able to renew your name reservation if needed.
Doing Business As
You can register a name for your LLC and then conduct business under a trade name, often called a “doing business as” name, or DBA. DBAs are registered through your state for a fee. A DBA must usually meet certain naming requirements, but they aren’t as strict as those for the legal entity.
2. Choose a Registered Agent for Your LLC
All LLCs must have a registered agent with a physical address (not a P.O. Box) in the state where the LLC is created. The registered agent is the person who receives important tax and legal documents, such as service of process or annual renewal forms.
Your registered agent can be you, a trusted individual or a hired person. Some states also allow you to name another business as a registered agent. Requirements commonly include the following:
- An individual over 18 years old or an entity authorized to do business in the state
- An individual or entity with a physical address in the state
- If an individual, someone who is available during business hours to receive mail
- If an entity, an entity other than the LLC itself
If you name yourself as the registered agent, you must be available during business hours to receive important legal or tax documents. To protect your personal address from becoming public, you may choose to have a virtual business address for LLC mail.
3. File LLC Formation Paperwork
Next, you’ll need to file the formation documents that make your LLC official. Depending on your state, these documents may be referred to as the articles of organization, certificate of formation or certificate of organization. This paperwork will usually include basic information such as:
- Your LLC’s name, address and purpose
- The names of the LLC’s owners or members
- Your registered agent’s name and contact information
You’ll need to pay a filing fee, which varies by state. Nationally, filing fees range from $50 to $500. Depending on your state, you may be able to submit your paperwork online, by mail or in person.
4. Draft an LLC Operating Agreement
An operating agreement is a document that outlines your business’s rules, regulations and provisions. For example, it might list information such as the powers and responsibilities of your LLC’s members and managers, how profits and losses will be shared and how your LLC will manage buyouts or dissolution.
If an operating agreement isn’t a requirement for forming an LLC in your state, then drafting one is optional. Currently, only California, Illinois, Missouri and New York require an operating agreement when forming an LLC.
A lawyer or LLC formation service can help you draft an operating agreement that meets your business’s needs.
5. Apply for LLC Tax Identification Numbers
LLCs with more than one owner or at least one employee are required to sign up for federal and state tax identification numbers. LLCs with one owner (or an LLC owned by a married couple, if a community property state) and no employees may be able to avoid signing up for an EIN, however.
Regardless, most LLC owners benefit from applying for federal and state tax identification numbers, also called employer identification numbers, even if it’s not required. Getting an EIN is free, and having one allows you to open business bank accounts and credit cards.
Federal Employer Identification Number
You’ll need to get an employer identification number to pay employment taxes and open a business bank account. You can get an EIN for free from the IRS website. Some LLC services will request one for you as part of their formation service (for a fee).
Even if you’re not required to get an EIN for your LLC, it may be a good idea anyway. For example, federal tax forms that you share with clients, such as a Form W-9, require you to use your Social Security number if you don’t have an EIN, which could raise potential privacy concerns.
State Tax Identification Numbers
Many states provide a unique identification number for your LLC when you file your paperwork. Others may not provide the number automatically. Instead, they may instruct you to register with a specific department (such as the department of revenue or taxation) to request an identification number.
How Much Does an LLC Cost?
Nationally, the average cost of forming an LLC is $132, based on our research. We calculated this number by averaging the filing fees of every state. Depending on where you live, LLC costs can be affordable or very expensive. For example, the filing fee for forming an LLC is $40 in Kentucky and $500 in Massachusetts.
You’ll also generally need to pay an annual report fee. For example, in California, the annual fee is $800, but in Michigan, it’s only $25. Some states, such as Minnesota, Ohio and Texas, don’t charge an annual report fee.
Cheapest Way To Start an LLC
Unfortunately, you can’t start an LLC completely free of charge because every state requires paying a filing fee to establish one. If you’re interested in using an LLC formation service to help you with the process, providers such as LegalZoom and ZenBusiness offer free packages that require paying only the state filing fee.
Pros and Cons of Forming an LLC
Consider some of the pros and cons of establishing an LLC:
Often affordable: Many states’ LLC filing and annual report fees are $50 or less, and some states don’t charge an annual report fee at all.
Basic liability protection: An LLC may help protect a business owner’s personal assets from the company’s potential debts and liabilities.
Tax flexibility: LLCs can be taxed as sole proprietorships (if one owner), partnerships (if multiple owners), S corporations, or C corporations. The legal structure gives owners the choice of how business profits are taxed.
Vast cost differences by state: Forming an LLC is costly in some states, such as California ($70 filing fee and $800 annual fee) and Massachusetts ($500 filing fee and $500 annual fee).
What Are the Different Types of LLCs?
LLCs come in various forms to suit the needs of a business’s ownership structure and operational strategy, such as single-owner businesses, partnerships or larger groups with multiple members.
Here are the different types of LLCs entrepreneurs can consider:
- Single-member LLC: A single-member LLC is designed for one owner. It offers personal liability protection with simple management. By default, single-member LLCs are taxed in the same way as sole proprietorships for federal tax purposes.
- Multimember LLC: A multimember LLC is suitable for businesses with two or more owners. It provides a framework for management and profit distribution. Any LLC with more than one owner is treated as a partnership for federal tax purposes, unless another tax status is elected.
- Member-managed LLC: With a member-managed LLC, all members participate in the day-to-day operations of the business.
- Manager-managed LLC: With this option, members appoint a manager or managers (who may or may not be members) to run the LLC.
- Professional LLC: A professional LLC is for licensed professionals, such as doctors and lawyers. State laws often require a specific PLLC structure for businesses in certain professions.
- Series LLC: A series LLC allows for the creation of separate “series,” or divisions, each of which has its own members, assets and liabilities. A series LLC provides an internal shield among the different parts of the LLC.
LLC vs. Other Entity Types
Aside from LLCs, there are several other business entity types to consider, each of which has unique advantages, tax implications and regulatory requirements. Comparing these entities — such as sole proprietorships, partnerships, corporations and nonprofits — is crucial for entrepreneurs to determine the structure that best aligns with their business goals and operational needs.
Here’s a brief comparison between LLCs and other common business entities:
- Sole proprietorship: A sole proprietorship is any unregistered business with one owner. Independent contractors and freelancers are commonly sole proprietorships. Sole proprietorships come with no personal liability protection.
- Partnership: A partnership is an entity owned by two or more people. Partnerships do not need to be legally registered and offer pass-through taxation, but like sole proprietorships, they lack the liability protections of an LLC. Many states offer a limited liability partnership structure with privileges that are similar to an LLC.
- C corporation: A C corporation is a more complex entity. It offers limited liability protection and has the ability to issue stock, but its profits are subject to double taxation — at the corporate level and again on dividends to shareholders. Despite double taxation, C corporation taxation sometimes results in a lower overall tax bill. LLCs can elect to be taxed as a C corporation.
- S corporation: An S corporation is a federal tax status, not a legal entity type, that can be elected by LLCs and C corporations. Like a sole proprietorship or partnership, an S corporation avoids double taxation by allowing income to pass through to shareholders’ personal tax returns, and like a C corporation, owners who participate in running the business are treated as employees. However, electing S corporation taxation comes with several restrictions that may be too onerous for some business owners. Many states do not offer an S corporation form, which means an LLC that makes a federal S corporation election may continue to be taxed as a sole proprietorship or partnership at the state level.
- Nonprofit organization: Designed for organizations that serve the public good, nonprofits can receive tax-exempt status. But they’re subject to specific operational constraints and must reinvest profits in the organization’s mission rather than distributing them. Nonprofit organizations have no owner.
How To Stay Compliant After Forming an LLC
To keep your business legitimate and in good standing, you’ll need to get the appropriate licenses and permits and file annual reports, if required. Your requirements aren’t limited to these considerations. You may also need workers’ compensation or business insurance, for example, depending on how you set your business up. We also recommend setting up a business bank account and credit card to keep your business assets and personal assets separate.
Apply for LLC Licenses and Permits
You may need a special business license or permit depending on your business’ activity and where it’s located. You can generally find this information on your state’s business website.
File Annual Reports
Most states require LLCs to file reports annually or every other year, and some states charge a filing fee. Deadlines vary by state, and many charge a late fee or subject your LLC to automatic dissolution if you don’t file an annual report or pay an annual report fee.
In addition, LLCs with more than one owner must file annual federal and state tax returns even if they are taxed as pass-through entities. For example, LLCs that are taxed as partnerships must issue Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., to each owner (called a partner) and file Form 1065, U.S. Return of Partnership Income. Failure to file these tax forms can result in severe consequences, including financial penalties or the dissolution of your business.
LLC Formation Survey: What We Learned From Business Owners
In 2025, our research team conducted an online survey of 1,000 LLC owners to find out more about their experiences with the formation process. Here are some of our key findings:
- Nearly half of LLC owners (47%) registered their LLCs to protect their assets from potential lawsuits or business debt. Business credibility (21%) and tax benefits (20%) were the second- and third-most common reasons.
- More than half (54%) of LLC owners used an LLC formation service to register their businesses.
- LegalZoom was the most popular choice for an LLC formation service among respondents, accounting for 48% of LLC registrants.
- An overwhelming majority (83%) of respondents who used an LLC formation service said they were either satisfied (47%) or very satisfied (35%) with their service.
We also asked an open-ended question about what advice respondents would give to business owners considering forming an LLC. The most common themes of the responses we received were:
- Do your research.
- Start the process early.
- Watch for hidden fees.
- Use reputable services.
- Have all documentation ready.
The listings that appear are from companies from which this website may receive compensation, which may impact how, where and in what order products appear. Not all companies, products or offers were reviewed in connection with this listing.
Frequently Asked Questions About Starting an LLC
No, you don’t have to form your LLC where you live. However, you do need to form your LLC where you want to do business. You also must have a physical address in the state where you’re registered and where you can receive mail.
Yes, you can form an LLC by yourself as a single-member LLC. You can also form an LLC by yourself without the help of an LLC formation service.
It often takes anywhere from a couple of weeks to a couple of months to form an LLC, based on our research. Processing times vary by state. Some states offer expedited services, such as same-day or one-hour service, for an extra fee.
Owning an LLC is worth the paperwork and expense for owners of many types of businesses, but not all. An LLC may not be the most advantageous structure for certain types of businesses, such as those seeking to raise venture capital funds.
You can start an LLC with very little money in many states, but it is never free to form one. At a minimum, you’ll have to pay a filing fee and often an annual reporting fee. Montana charges the cheapest LLC formation filing fee in the country of $35.
*Data accurate at time of publication.
Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.
