How To Start an LLC in 7 Steps

To start a new business or officially register your side hustle or freelance work, forming a limited liability company, or LLC, is a great option. An LLC protects your personal assets from legal or financial issues in your business without complicating your taxes. 

Forming an LLC isn’t difficult or expensive, but does take some time and effort (and no small amount of dealing with state bureaucracies). This article will walk you through all the steps to file an LLC in whichever state you plan to do business. You’ll need to choose an official name, submit a business address, and find a registered agent.

If you have limited time or want faster results, we offer Squarespace users a special extension to file an LLC and skip the paperwork. Our partner, Swyft Filings, can help you file for an LLC in minutes so you can focus on what’s really important—running your business.

Note: This guide is available as a resource to help you get started, but this guide is not legal or tax advice. This guide is specific to U.S. audiences.

How to start an LLC

The steps for starting an LLC vary slightly by state, but the general outline is the same everywhere. 

1. Choose a state in which to form an LLC

In theory, you can form your business in any state you want. But the best choice is almost always going to be the state in which you currently live. 

Certain states, including Delaware, Nevada, and Wyoming, provide low taxation and other advantages to attract LLCs. This can be tempting, but before you form an LLC out-of-state, make sure you’re willing to travel to open a bank account and hire your employees there. You’ll probably also have to register a foreign LLC in your home state anyway, leading to paying fees in two states. 

In most cases, the hassle and cost of running multiple LLCs will cancel out the benefits of an LLC-friendly jurisdiction.

2. Pick a name for your LLC

Choosing a business name is a creative and technical task. When naming your LLC, keep these factors in mind.

The name’s availability in your state

Some states have specific rules that govern what makes a name “distinguishable” from another in its business database. In other states, the laws are a little vague. Use a business name search to find out what’s available and ensure your LLC name will likely be approved.

Your state’s naming guidelines

Most states require your name to include a business designation indicating you’re an LLC. Often there are a few accepted abbreviations of the term “limited liability company,” such as “limited co.,” “L.L.C.,” “ltd.,” or “limited liability co.”

Website domain availability

Online marketing is critical to any business. So before you commit to your LLC name, make sure that a similar domain name is also available for your business website.

You don’t have to make your website name the exact same as your LLC name, though it can be convenient. Just be sure to use the same LLC name on legal and financial documents.

Learn how to register a domain name

3. Identify a registered agent

Your LLC needs a registered agent in the state it wants to incorporate in. A registered agent is a person or business that receives legal documents on behalf of your business if you’re sued, subpoenaed, or otherwise contacted by a court of law. They must keep regular office hours at a physical address in the state where your LLC is formed.

Registered agents must be available to receive legal documents at all times during business hours. This means that if you serve as your own registered agent, you can’t leave your office for any reason, even to grab a coffee or take a vacation. Hiring a third-party registered agent frees you from this responsibility, giving you the freedom to focus on running your business.

There are also privacy concerns with acting as your own registered agent. If you’re served with a lawsuit, would you want it to happen in front of your customers or during a business meeting? For these reasons, a professional registered agent service is a wise choice for your LLC. Costs vary, but a third-party agent typically costs from $100-300 per year.

4. File the articles of organization

The articles of organization are the official registration documents for your LLC that you file with your state government. They sound complicated, but they’re rarely more than two pages long. Some states call this a certificate of formation.

You can almost always file articles of organization online. Filing fees vary, but they’re rarely more than $300. A $100 filing fee is typical.

You’ll generally need the following information to fill out articles of organization.

• Business name: The state will check to see that your name is unique and meets its requirements.

• Business address: Usually, you need a physical location for your business and not a P.O. Box.

• Name and address of your registered agent: This address can’t be a P.O. Box either. It could be an individual member or employee of your LLC, but can’t be the business itself.

• Names and addresses of LLC members: Most states require LLCs to list all of their members in the articles of organization. A member of an LLC is essentially an owner. If you’re the only person involved in your business, you’re the only member.

• LLC’s purpose: A purpose statement should briefly describe the business activities your LLC will engage in. Keep it clear enough to understand what your business does but not so specific that it limits your ability to expand in the future. For example: “To provide consulting services in the fields of marketing, management, and strategy.” 

• Chosen management structure: If you choose to hire one or more managers to oversee the business for you, you may need to indicate it in your articles of organization and potentially name those managers.

• Name and address of the incorporator(s): Whoever is filling out the articles of organization needs to identify themselves, provide an address, and sign, saying they are legally authorized to start the business they’re forming.

5. Create an operating agreement

An LLC’s flexibility is one of its main advantages. Once formed, there are no regulations on how you decide to run your business. That said, it’s wise for all LLC members to draft and sign an operating agreement. 

For single-member LLCs

An operating agreement can shore up your limited liability by explicitly separating your business and personal affairs. It also shows potential customers and partners you’re serious about the details.

For multi-member LLCs

An operating agreement is even more important. It answers questions like: How will each LLC member be paid? How is ownership divided? Who is responsible for what? How will decisions be made?

You don’t want these questions decided by verbal or handshake agreements. An operating agreement can help formalize rules and responsibilities to reduce risks in the future.

6. Obtain an employer identification number

As soon as your LLC is formed, it’s time to get your Employer Identification Number (EIN) from the IRS. An EIN is required for paying federal taxes and used in many critical business operations, including: 

• Hiring employees (you’ll need to register for federal payroll taxes)

• Securing business licenses and permits from state and federal agencies

• Registering to pay state taxes

• Banking as a business, including applying for loans and credit cards 

7. Open a business bank account

The point of an LLC is to separate your business and personal affairs. So you’ll want to get a bank account for your LLC shortly after filing. 

A business account is more than a legal precaution. It helps for tracking expenses, which could lower your taxes, and generally makes your business finances more simple to manage.

To open a bank account for your LLC, you’ll probably need the following documents.

• Proof that your business exists: You can likely use your articles of incorporation or operating agreement. Requirements vary by bank and by state. 

• Proof of business address: A piece of mail or a lease agreement may be required.

• Personal identification: A state ID or passport for you and anyone else authorized on the account should do. You may also have to open the account in person.

• EIN: The Employer Identification Number discussed in the last section will also be required.

Learn more about setting rates for your business

8. Keep your LLC in good standing

Most states require businesses to provide an annual report (some require it every two years) to keep state records up to date on your LLC’s basic information. If you fail to file your annual report, your business could be administratively dissolved.

Depending on the state, annual reports are usually due either by the end of the anniversary month of your incorporation or in the first four months of each year. 

You’ll want to check the website of your state’s tax office to ensure you’re paying the correct taxes and that you’ve acquired the licenses and permits you need to do business legally.

Benefits of a limited liability company

LLCs offer a uniquely powerful business structure. The biggest benefit lies in protecting your personal assets—your finances and property—from your business liabilities. But there are also tax and flexibility benefits to consider.

Limited liability

The best way to understand limited liability is to imagine that, by some misfortune, your business is involved in a lawsuit or ends up in serious debt. In this situation, how much money could you potentially owe?

Without limited liability, which sole proprietorships don’t have, everything you own could be vulnerable—your house, your car, your savings. But as a member of an LLC, assuming you’ve followed the law, the most you should be able to lose is your initial investment in the business.

Separating your personal assets from those of your LLC can dramatically reduce your financial risk. This is the main reason entrepreneurs choose to incorporate.

Benefits of a limited liability company

LLCs offer a uniquely powerful business structure. The biggest benefit lies in protecting your personal assets—your finances and property—from your business liabilities. But there are also tax and flexibility benefits to consider.

Limited liability

The best way to understand limited liability is to imagine that, by some misfortune, your business is involved in a lawsuit or ends up in serious debt. In this situation, how much money could you potentially owe?

Without limited liability, which sole proprietorships don’t have, everything you own could be vulnerable—your house, your car, your savings. But as a member of an LLC, assuming you’ve followed the law, the most you should be able to lose is your initial investment in the business.

Separating your personal assets from those of your LLC can dramatically reduce your financial risk. This is the main reason entrepreneurs choose to incorporate.

• C corp taxation: Beneficial if you would pay lower taxes as an employee of the LLC than you would as a self-employed business owner.

• S corp taxation: Allows owners of highly profitable LLCs to reduce their self-employment tax by allowing additional distributions after paying themselves a “reasonable” salary.

Flexible management

While C corporations are governed by shareholders and required to recruit and maintain a board of directors, hold annual meetings, and issue stock, LLCs can run their businesses as they choose. 

Almost any person—or business—can be a member of an LLC, including partnerships, corporations, other LLCs, trusts, and individuals (including non-U.S. residents). Meanwhile, S corporations have strict limitations on who can be a shareholder.

Disadvantages of a limited liability company

An LLC is a winning solution for many small businesses, but it’s not everyone’s best choice. There are some potential restrictions to limited liability and tax impacts to keep in mind.

Limits of limited liability

Forming an LLC and calling it a day does not guarantee limited liability. In the course of business, you may enter into contracts that require you to sign away these protections. And if you violate the law or aren’t careful to separate your personal and business affairs, your limited liability could be nullified in a legal or debt proceeding.

Self-employment taxes

LLCs don’t pay corporate tax, but your income from your business will be subject to self-employment tax. Self-employed individuals in the U.S. pay their full share of Medicare and social security taxes and must file quarterly estimated payments.

To reduce self-employment taxes for their members, LLCs can file for S corporation status. This would allow members to pay themselves as employees, requiring the LLC to match their contributions to social security and Medicare taxes. And after members are paid a “reasonable” salary for their work, they can take distributions free of self-employment tax. 

S corp status comes with some limitations. For example, there can be at most 100 members, and corporations and partnerships are ineligible.

LLC ownership transferability

Once an LLC’s members are listed in its articles of organization, removing those owners or adding new ones can be an arduous process. Your operating agreement can include language to make this process easier if you anticipate the business changing hands in the future.

Should you use an LLC formation service?

You can do all the steps to form an LLC on your own, but many business owners find it’s not worth the time or headache when there are affordable digital tools available. Instead, a formation service can save you substantial time, money, and trouble. 

Squarespace has partnered with Swyft Filings to make forming a business as simple as possible, with no mistakes or do-overs. Filling out the paperwork to form your LLC will take minutes, not days or weeks. Prices start as low as $0 + filing fees. Once the paperwork is done, you can access your documents securely online.

If you use Swyft Filings to incorporate your LLC, you gain a long-term business partner that also provides affordable registered agent services, access to personal business experts, tailored documents, and help with licenses and other essential business tasks.

Existing Squarespace users can start an LLC with Swyft Filings today.

Edited by Zachary Ace Aiuppa

FAQ

How much does it cost to form an LLC?

Filing fees vary by state, but forming an LLC usually costs between $50 and $500.

What’s the difference between an LLC and a corporation?

Unlike a corporation, an LLC is owned by members, not shareholders. Member stakes in the company are divided according to an operating agreement, while a corporation shareholder’s ownership is quantified by the amount of stock they own.

In addition, LLCs are taxed as “pass-through” entities by default, while corporations are subject to corporate tax unless they elect S corporation status.

What’s the difference between an LLC and a sole proprietorship?

Sole proprietorships have no legal separation between their single owner and that person’s personal assets. LLCs can have any number of members, and those members enjoy limited liability, which separates their personal affairs from those of the business.

Do I need a lawyer to start an LLC?

While the advice of an attorney may be helpful on certain aspects of the LLC formation process, a lawyer is not required to start an LLC.