How to Form an LLC: Step by Step Guide
What an LLC Actually Does for You
An LLC (Limited Liability Company) creates a legal entity that is separate from you as an individual. When your business operates as an LLC, the company owns its assets, holds its debts, and is the party named in any lawsuits. Your personal assets, your house, your car, your savings accounts, your retirement funds, are shielded from business liabilities. If a customer sues your LLC for $500,000 and wins, they can collect from business assets but cannot touch your personal property. Without an LLC, as a sole proprietor, there is no legal separation, and that same judgment could drain your personal bank account.
This protection is not absolute. Courts can "pierce the veil" and hold you personally liable if you treat the LLC as your personal piggy bank: commingling personal and business funds, failing to maintain a separate bank account, not keeping basic records, or using the LLC to commit fraud. The protection works when you respect the separation between yourself and your company, which is straightforward if you follow the steps in this guide.
Step-by-Step LLC Formation Process
The vast majority of small businesses should form in their home state, the state where you live and where the business operates. You have probably seen advertisements promoting Delaware or Wyoming LLCs for their favorable business laws. This advice is relevant for venture-backed startups and large corporations, not for a small business with one or two owners. If you form in Delaware but operate in Ohio, you must register as a foreign LLC in Ohio anyway, paying formation fees in both states, filing annual reports in both states, and maintaining a registered agent in both states. You pay double for no practical benefit. Form in your home state unless a qualified attorney advises otherwise for a specific reason.
Your LLC name must be distinguishable from any existing business entity registered in your state. Every state maintains a searchable business name database on their Secretary of State's website. Search for your desired name, including common variations, to confirm it is available. Most states require your name to include "LLC," "L.L.C.," or "Limited Liability Company" as a designator. Some states prohibit certain words like "bank," "insurance," or "university" unless you hold specific licenses. If your desired name is available but you are not ready to file immediately, most states let you reserve the name for 60 to 120 days for a small fee ($10 to $40). Also check the domain name and trademark availability before committing, since a state-registered business name does not give you exclusive national rights to that name.
Every LLC must have a registered agent with a physical street address (not a PO Box) in the state of formation. The registered agent receives legal documents, tax notices, and official state correspondence on behalf of your LLC. You can serve as your own registered agent if you have a physical address in the state and are available during business hours. The downside is that your home address becomes public record and you must be available to accept service of process in person. Registered agent services cost $49 to $300 per year and provide a commercial address, privacy, and guaranteed availability during business hours. Northwest Registered Agent, Incfile, and ZenBusiness are popular options. Your registered agent information goes on your Articles of Organization, so decide on this before filing.
The Articles of Organization (called a Certificate of Formation in some states, including Delaware and Texas) is the document that officially creates your LLC. You file it with your state's Secretary of State office, either online or by mail. The form is typically one to two pages and asks for: your LLC's name, your registered agent's name and address, your principal business address, whether the LLC is member-managed or manager-managed, the names of organizers (the people filing the document), and in some states, a brief statement of purpose. Filing fees range from $50 (Kentucky, Arkansas, Mississippi) to $500 (Massachusetts), with most states charging $100 to $200. Online filing is usually processed within 3 to 10 business days, and many states offer expedited processing for an additional fee. Our state-by-state guide has the exact fee, form, and processing time for every state.
An operating agreement is an internal document that governs how your LLC operates. It defines ownership percentages, how profits and losses are distributed, how decisions are made, what happens when a member wants to leave, and how the LLC would dissolve. Only a few states legally require an operating agreement (New York, California, Maine, Delaware, and Missouri), but every LLC should have one regardless of state law. For single-member LLCs, it establishes that you treat the business as a separate entity, strengthening your liability protection. For multi-member LLCs, it prevents disputes by putting everyone's agreement in writing before disagreements arise. You can draft your own using a template for a single-member LLC. Multi-member LLCs should consider having an attorney review the agreement, especially the sections on dispute resolution, buyout procedures, and dissolution.
An Employer Identification Number (EIN) is a nine-digit number assigned by the IRS that identifies your business for tax purposes. You need it to open a business bank account, hire employees, file business tax returns, and apply for business credit. The application is free on the IRS website (search "EIN application" on irs.gov), takes about five minutes, and you receive your EIN immediately upon completion. You can apply Monday through Friday, 7 AM to 10 PM Eastern time. The form asks for basic information about your LLC: its legal name, address, the responsible party (you, for a single-member LLC), and the type of business activity. Do not pay any third-party service to obtain your EIN. It is always free directly from the IRS.
With your Articles of Organization (stamped or filed), your EIN confirmation letter, and a government-issued photo ID, you can open a business checking account at virtually any bank or credit union. Some banks also require a copy of your operating agreement. Compare options based on monthly fees (many banks offer free business checking for accounts under a certain transaction count), minimum balance requirements, online banking features, and integration with your accounting software. Chase, Bank of America, and US Bank are common choices for brick-and-mortar banks. Mercury, Relay, and Novo are popular online-only business banks with no monthly fees and strong integrations. Open the account and use it exclusively for business transactions from day one. See our business banking guide for detailed comparisons.
After Formation: What Comes Next
Filing your Articles of Organization and getting your EIN are the core formation steps, but there are several additional tasks to complete in your first few weeks. Apply for any business licenses and permits required by your state, county, and city. If you sell taxable products, register for a sales tax permit in your home state. If you plan to hire employees, register with your state's department of labor for unemployment insurance and workers' compensation. Set up a basic accounting system (QuickBooks, Xero, or Wave) and connect it to your business bank account so transactions are categorized from day one.
Keep a copy of all formation documents in a single location: your filed Articles of Organization, EIN confirmation letter, operating agreement, registered agent agreement, and any business license certificates. You will need these documents repeatedly for bank account applications, business credit applications, lease agreements, insurance applications, and vendor agreements. A digital folder backed up to cloud storage works fine. Some business owners also keep a physical binder with original copies.
DIY vs. Formation Services
Formation services like LegalZoom ($79+), ZenBusiness ($0 to $199), Incfile ($0 to $199), and Northwest Registered Agent ($39+) will file your Articles of Organization, obtain your EIN, and provide a registered agent for a fee. The "free" tiers typically charge only the state filing fee but require purchasing a registered agent plan. The value of these services is convenience and reduced anxiety about making mistakes. The drawback is cost: you can do everything yourself for just the state filing fee ($50 to $500 depending on state), while formation services add $100 to $500+ on top of that, plus upsell you on unnecessary add-ons like "compliance packages" and "business kit binders" that provide minimal value.
If you are comfortable following instructions and filling out government forms, do it yourself. The Secretary of State websites are designed for non-lawyers to use. If the idea of filing government paperwork makes you anxious, or if you want someone else to keep track of deadlines and compliance, a formation service at the $39 to $99 tier (plus registered agent) is a reasonable investment. Avoid the premium tiers that charge $300+ for services you do not need, like rush processing (usually available directly from the state for less) or operating agreement templates (widely available for free online).