Starting a business is fun, but picking the right legal setup can be tough. If you are trying to form your LLC, you are on the right track. When it comes to operational ease, tax flexibility, and personal asset protection, a Limited Liability Company hits the sweet spot for most new business owners. This applies to you whether you are a freelancer, an e-commerce seller, or a non-resident entrepreneur with a focus on the U.S. market. This guide covers everything you need to know.
What Does It Mean to Form Your LLC?
First, an LLC stands for Limited Liability Company. This business structure legally protects your personal assets from the liabilities of your business. When you form your LLC, it legally becomes a separate legal entity. This means it can be sued, can own property, and can take out loans. Because of this, your personal belongings (including your home and other assets) are protected against lawsuits and financial problems your business may encounter.
An LLC gives your business its own legal identity, unlike a sole proprietorship, which offers no protection. Corporations offer legal identities, but are more complicated.
Why an LLC Is the Preferred Choice for New Business Owners
An LLC has a reason for being the most preferred business structure in the United States. Here are the most important ones:
- Personal liability protection. Your personal assets are protected from the liabilities associated with your business.
- Tax flexibility. LLCs can be taxed in a number of different ways, allowing you to select the one that is most beneficial, including sole proprietorship, partnership, S-Corp, or C-Corp.
- Operational simplicity. No board of directors, no shareholder meetings, and no complicated bookkeeping.
- Credibility. Clients, vendors, and banks trust businesses that have “LLC” in their names.
- Freedom of profit distribution. Members can agree to split profits in any ratio regardless of ownership percentages.
Who Should Form an LLC and When Is the Right Time?
Almost anyone starting a business should consider it. Freelancers, consultants, online sellers, real estate investors, and even side hustlers benefit from the liability protection an LLC provides. The LLC business structure is particularly accessible for non-resident entrepreneurs wanting to operate in the U.S. market.
The right time to form your LLC is before you start earning revenue or signing contracts. Operating without a formal business structure exposes your personal assets from day one.
Requirements You Need Before You Form Your LLC
Here is a checklist of items to prepare before filing your forms:
- Business idea and purpose
- 2 or 3 potential business names
- A choice of state for registration
- A registered agent
- An understanding of your state’s filing fees
These will ensure a smooth and fast formation process.
Where to Set Up Your LLC
States have laws that affect LLC formation differently. Here is a summary of some of the popular states to form LLCs:
| State | Filing Fee | Annual Fee | Key Advantage |
| Wyoming | $100 | $60 | No state income tax, strong privacy laws |
| Delaware | $90 | $300 | Business-friendly courts, established legal precedent |
| New Mexico | $50 | $0 | Lowest cost, no annual reporting requirement |
| Florida | $125 | $138.75 | Large consumer market, no personal income tax |
If you expect to do most of your business in one state, it usually makes the most sense to form your LLC there. If you are most concerned with privacy and low fees, New Mexico and Wyoming are good options.
Step 1: Choose and Reserve Your LLC Name
Your LLC name has to be unique in the state you are registering in. Most states offer a tool on their Secretary of State’s website to check name availability. Keep in mind:
- The name must contain “LLC” or “Limited Liability Company.”
- It must not, without special permission, contain words considered restricted, such as “Bank” or “Insurance.”
- Your name can be reserved in a lot of states for 60 to 120 days while you complete the rest of your filing
Step 2: Designate a Registered Agent
Every LLC must have a registered agent. This is a person or service that takes in and manages legal and official paperwork for the business. Your agent must be in the same state where your LLC is created and must be available for business during standard business hours. Many business owners use professional registered agent services for privacy and convenience.
Step 3: Submit Your Articles of Organization
This is a document that establishes your LLC, and is submitted to the Secretary of State for the state of your choice. This document contains the LLC name, registered agent, business address, and a list of members or organizers. Depending on the state, the filing fee is anywhere between $50 to $500.
Step 4: Create an LLC Operating Agreement
An operating agreement is a document that describes the internal operations of an LLC, and is not legally required in many states. This document usually describes the management structure, members’ economic interests (i.e., how profits and losses are split), and members’ exit strategies. It is a good idea to have an operating agreement for a single-member LLC because it legally establishes the LLC as a separate entity.
Step 5: Obtain an EIN from the IRS
The IRS issues an EIN, or Employer Identification Number. This is a business’s Social Security number and establishes its legitimacy as a business. It is required in order to open a business bank account, hire employees, and file taxes. Citizens of the U.S. are eligible to receive their number immediately, for free, from a form on the IRS’s website, while non-residents may have to apply by fax or mail, or use a trusted service to form their business.
Step 6: Open a Bank Account
After obtaining your EIN and formation paperwork, you are ready to open a business bank account. This is essential to maintaining the liability protection that your LLC provides. If you merge your business and personal finances, you lose that protection in a lawsuit.
Step 7: Stay Compliant After Forming Your LLC
Forming your LLC is just the beginning. To keep good standing with your LLC, you will have to:
- Submit your state’s annual or biennial reports
- Pay any franchise taxes or renewal fees
- Stay current with your registered agent
- Submit the federal Beneficial Ownership reports to keep the BOI up to date
- Revise and adjust your operating agreement to keep pace with your business
Failing to meet any of these requirements results in penalties and, in some cases, the state may dissolve your LLC.
What Are the Costs Associated with Forming Your LLC?
State fees will vary and depend on whether you do it yourself or hire a service. Here is a general outline:
| Expense | Estimated Cost |
| State filing fee | $50 to $500 |
| Registered agent service | $100 to $300 each year |
| Operating agreement | $0 to $200 |
| EIN application | Free (IRS) |
| Business permits and licenses | Relative to the business |
Most business owners will pay between $150 and $800 to get everything ready. This depends on the chosen services and the state.
Most Common Problems When Forming Your LLC
New entrepreneurs make mistakes, and here are the most common:
- Filing for an LLC in a state that does not have long-term connections or local operations, and picking a state only for the filing fees
- Not creating operating agreements because the state does not require them
- Not separating personal and business finances
- Missing the deadlines for annual reports
- Not getting the local business licenses or permits
Start Your LLC with No Stress
Starting your business is as easy as it gets with an LLC. With a little planning, creating and managing an LLC is easy. Just make sure to do your research and plan for the compliance required once your LLC is set up.
If the thought of some of the paperwork is stressful, EasyFiling files your paperwork for you, with added services such as LLC formation, filing an EIN, and compliance services for U.S. and non-U.S. citizens, making the process easy.
