Chapter 15: How to Form an LLC in the United States
A limited liability company, commonly called an LLC, is one of the most widely used legal structures for small businesses in the United States. It can offer flexible management, multiple federal tax-classification options, and a degree of separation between the business and its owners, who are known as members.
However, an LLC is created under state law rather than through one nationwide federal registration system. The forms, filing fees, naming rules, annual reports, taxes, and compliance requirements depend on the state where the LLC is formed and where it conducts business.
The following steps explain the general process of forming an LLC in the United States.
Decide Where to Form Your LLC
Most small-business owners form their LLC in the state where they live and primarily operate. Forming in another state may create additional costs and administrative obligations if the company must later register as a foreign LLC in its home state.
Before choosing a state, consider:
- Where the business will operate
- Where employees will work
- Where customers will visit
- State filing fees
- Annual reporting requirements
- State taxes and franchise fees
Do not select a state simply because it is frequently promoted as “business friendly.” For many local businesses, forming in the operating state is the most practical approach.
Choose an Available LLC Name
Your proposed business name must comply with the naming rules of the formation state. It generally must be distinguishable from names already registered there and include an approved designation such as “Limited Liability Company,” “LLC,” or “L.L.C.”
Search the appropriate state business database before filing. You should also check:
- Federal and state trademark records
- Internet domain availability
- Social media usernames
- General search-engine results
State approval of an LLC name does not automatically grant nationwide trademark rights. Businesses planning to build a valuable brand should consider obtaining qualified trademark guidance.
Appoint a Registered Agent
An LLC generally must appoint a registered agent in its formation state. The registered agent receives official government correspondence, legal notices, and service-of-process documents on behalf of the company.
Depending on state law, the agent may be:
- An adult resident of the state
- A member or employee of the LLC
- An attorney
- A professional registered-agent service
- Another eligible business entity
The registered agent normally must maintain a physical address in the state and be available during regular business hours. Keeping this information current is important because missed legal or government notices can create serious problems.
File the Formation Documents
To legally create the LLC, file formation documents with the appropriate state agency, commonly the secretary of state or a similar business-filing office.
The document may be called:
- Articles of Organization
- Certificate of Organization
- Certificate of Formation
The filing usually requests basic information such as the LLC’s name, address, registered agent, management structure, and organizer. A state filing fee is normally required, although the amount varies significantly. The SBA recommends checking the applicable state agency for current requirements.
Some states may impose additional steps, such as an initial report, publication requirement, or separate state tax registration.
Create an Operating Agreement
An operating agreement explains how the LLC will be owned and managed. Although not every state requires one to be filed, it is an important internal document for both single-member and multi-member LLCs.
An operating agreement may address:
- Ownership percentages
- Member contributions
- Profit and loss allocations
- Voting rights
- Management authority
- Admission of new members
- Procedures when a member leaves
- Dispute resolution
- Dissolution of the company
For a multi-member LLC, a clear operating agreement can prevent misunderstandings and establish how important decisions will be made. The SBA describes it as a document governing the LLC’s financial and functional rules.
Obtain an Employer Identification Number
An Employer Identification Number, or EIN, is a federal tax identification number issued by the Internal Revenue Service. An LLC may need an EIN to hire employees, file certain tax returns, open financial accounts, or conduct other business activities.
The IRS states that an LLC’s federal tax treatment depends on the number of members and any tax election it makes. A single-member LLC may be treated as part of its owner’s tax return by default, while a domestic multi-member LLC is generally treated as a partnership unless it elects corporate treatment.
Tax classification is separate from the company’s formation under state law. A qualified tax professional can help owners understand the available choices.
Register for Taxes, Licenses, and Permits
Forming an LLC does not automatically give the company permission to conduct every type of business.
Depending on its location and activities, the LLC may need:
- State tax accounts
- Sales-tax or seller’s permits
- Payroll registrations
- Professional licenses
- Local business licenses
- Health or safety permits
- Zoning approval
- Industry-specific authorization
License and permit requirements depend on the business activity, location, and government agency involved.
Separate Business and Personal Finances
Open a dedicated business bank account and use it for company income and expenses. Maintain accurate accounting records, document major decisions, and avoid using business funds for undocumented personal purchases.
Maintaining clear financial and operational separation supports reliable bookkeeping and reinforces that the LLC is being operated as a genuine business entity.
Maintain the LLC’s Compliance
Creating the LLC is only the beginning. Ongoing obligations may include:
- Annual or biennial reports
- State renewal fees
- Franchise or business taxes
- Updated registered-agent information
- License renewals
- Payroll and tax filings
- Accurate business records
Legal responsibilities depend on the business and its location, so owners should regularly review federal, state, and local requirements.
Build on a Proper Legal Foundation
Forming an LLC can provide a small business with a flexible and professional legal structure, but simply filing one document is not enough. Owners must choose the right state, verify the business name, appoint a registered agent, file formation documents, create an operating agreement, address tax requirements, obtain necessary permits, and maintain ongoing compliance.
Because state laws and individual circumstances differ, entrepreneurs should verify current requirements through official government sources and seek qualified legal or tax advice when appropriate.
In the next chapter, you’ll learn how to register a small business at the federal, state, county, and local levels and determine which registrations may apply to your operations.
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