How to Create an LLC in 5 Steps

Key takeaways

An LLC, which stands for limited liability company, is a legal business entity that can help shield owners from personal losses.

• LLC filing fees typically fall between $35 and $520, depending on your state [1].

• In many states, you can create an LLC by choosing a name, appointing a registered agent, and filing key formation documents like articles of organization and an operating agreement.

• You can form an LLC to protect your personal assets, simplify operations, and gain tax advantages.

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Is an LLC right for your business?

You might be choosing between an LLC, a sole proprietorship, or an S-Corp. Here’s how they compare:

LLC: protects the owner's personal assets from business lawsuits while allowing for flexible "pass-through" taxation.

Sole proprietorship: offers total control to a single owner but provides no separation between personal and business assets, meaning the owner is personally liable for all debts.

S-Corp: not a separate legal entity like an LLC, but rather a specific tax designation that allows business owners to be treated as employees, potentially saving on self-employment taxes by splitting income between a "reasonable salary" and shareholder distributions.

What is an LLC?

An LLC, which stands for limited liability company, is a legal business entity that is designed to shield owners from personal losses. LLCs can be formed to run almost any type of business and can be owned by one or multiple people. When it comes to business structure, they are generally considered to be more complex than sole proprietorships and less complex than corporations.

Start-up benefits of creating an LLC

There are several benefits to forming an LLC for business owners, including protecting your personal assets, gaining tax benefits, and increasing credibility in your business. Let’s take a closer look:

• Protect business owners’ personal assets: One of the primary benefits of forming an LLC is that it provides liability protection from the business’s debts and liabilities. This keeps your assets separate from the business’s, meaning creditors won’t be able to collect your assets.

• Tax benefits: When your business is an LLC, the business’s profits go directly to the owners without first being taxed at the federal level, like they would if your business were a corporation. The owner pays taxes on the profits as part of their individual income tax. Remember that taxation laws for LLCs vary by state.

• Simplicity: Compared to corporations, LLCs typically require less paperwork and fewer organizational hoops to jump through. For example, a corporation must elect corporate officers, establish classes of shares, and form a board of directors that must meet at regular intervals to discuss business strategy. An LLC is not required to do so.

Creating an LLC for your company

1. Decide on a name.

Generally, you’ll need to select a name that hasn’t already been registered by another LLC in your state. You can do this by finding your state’s business search database, which is commonly found on your state’s Secretary of State website. (For example, here’s Georgia’s.)

Certain states might have specifications. For example, California LLCs must end with “LLC” in the title (or a similar abbreviation like “Ltd.”). It’s a good idea to look up your state’s requirements as you decide on a name.

2. Appoint a registered agent.

A registered agent can be a person or a business entity that accepts tax or legal documents on behalf of the business. In many states, you can appoint yourself as a registered agent. However, hiring a third party might help with complicated paperwork if your business is large. In some states, such as New York, the Department of State acts as the default registered agent, but you may still choose to appoint your own.

3. File articles of organization.

Articles of organization, sometimes referred to as a certificate of organization, are the official documents filed with your state to legally establish your LLC. You can typically find articles of organization on your state’s Secretary of State website. You’ll also have to pay a filing fee at this point, which typically falls between $35 and $520 depending on your state [1]. Have basic information like your LLC’s name and address and your registered agent’s name and address ready to go. You can generally submit your form online or through the mail.

4. File an operating agreement.

Although not required by all states, filing an operating agreement can help to determine your organization’s structure and be especially beneficial to LLCs with multiple owners. Operating agreements outline how the organization will operate. Each owner or member of the LLC must sign the operating agreement. Several online resources, like RocketLawyer, provide free templates for operating agreements that can get the process started for you.

5. Tackle other related tasks.

Once you file important documents, like your articles of organization and operating agreement, you’ll be eligible to complete other business-related tasks. These can include:

• Getting an employee identification number (EIN) if applicable

• Obtaining a business license

• Opening an LLC bank account

• Getting business loans for LLCs

Read more: AI for Small Business—Transforming Operations and Driving Growth

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Frequently Asked Questions (FAQs)