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How to Start an LLC in the US - Simplifying the Process of Forming and Managing Your LLC

A comprehensive guide for entrepreneurs and small business owners exploring the world of Limited Liability Companies.

Introduction

Entrepreneurs when starting their own business, usually want to set up an LLC or Limited Liability Company, mainly for the liability protection that comes with it, besides other perks. It can protect you from being personally responsible to creditors or lenders for your business debts.

Setting up an LLC is the first and foremost step of establishing a business, and it involves a lot of legalities and formalities that can also vary from state to state. In this guide, we will tell you all about it, and also why you should register your business as an LLC.

What Is An LLC

An LLC or Limited Liability Company is a legal business structure that, as the name suggests, limits the liability of the company's owners. In the unfortunate event of your company being sued, your personal assets, like your house, car, personal bank accounts, and so on, can’t be used to pay off your debts, in an LLC.

The best part about an LLC is that it is the best of both worlds, where a corporation is on one hand, and sole proprietorship and partnership firms are on the other. You get the benefit of limited liability just like a corporation, and lesser formalities and tax benefits like sole proprietorship and partnership firms.

How Much Does It Cost To Start An LLC

There is no single answer to "how much does it cost to start an LLC", but it could vary from as little as $35 to as high as $500, depending on where you live in the US. This is just for the state filing fee, and the cost could increase due to other factors that we will cover below.

Of the various fees associated with starting an LLC, mainly the creation and filing of legal documents, some are tangential costs incurred in registering the LLC with state and local authorities. These costs include the money spent in acquiring all the required permits, licenses, and additional certificates that are required by the local, state, and federal governments, for the business to smoothly run.

Filing Fees

Typical costs: $35 to $500 (state filing fee)

For most small business owners, filing fees will constitute a major part of their LLC startup cost. Even though you can fulfill the process on your own, some might want additional help to just make the task easier.

Hiring a lawyer could raise your costs by $1000 to $1500. Or you can also use a legal service provider like CorpNet, whose sole task is to help you file the paperwork for starting an LLC for as little as $50. This can help you avoid any possible mistakes, save valuable time, and the hassle of fixing any errors that you might have caused otherwise.

While filing for your LLC, you will also need a unique name as you cannot have an LLC with the same name as another in the same State. You can find a unique and memorable LLC name with Namify’s LLC name generator.

In any case, you will have to pay the LLC filing fees for your state, and you cannot know how much does it cost to start an LLC unless you specify the state. The LLC filing fees vary from state to state, and the exact amount would depend on the state you are registering the LLC in.

The lowest LLC filing fee currently is $35 in Montana, and the highest is $500 in Massachusetts. Considering all the states and their respective LLC filing fees, the average cost of starting an LLC in the United States is $132.

Operating Agreement

Typical costs: $0 to $200

An operating agreement is an internal document that describes how the LLC will be run, what the roles and contributions of the owners will be, and how the decisions will be made. Whether your operating agreement will cost you additional money or not, will depend on how you chose to form your LLC.

If you filed the paperwork independently, you would need to purchase an Operating Agreement online from a legal service provider for anywhere between $50 to $200. If you had hired a lawyer, then this could already be a part of your deal. If not, they could charge you up to $500 for it.

If you had used a legal service provider for filling, this could again be part of the deal, if you had picked a mid-level or high-level package, or else you could get it for $50 to $100 from them itself. An Operating Agreement helps you avoid disputes within your LLC by keeping you and your team members on the same page.

Publication

Typical costs: varies from state to state

In some states like New York, Arizona, and Nebraska, LLCs are also required to publish notices for a specified time period in one or more newspapers. This will add to the overall cost of setting up an LLC, and the cost will vary based on the rates of the local and state newspapers.

Taxes

Typical costs: Varies from state to state

Like any other business structure, even an LLC is supposed to pay its taxes, but the federal government doesn’t take it directly from them. Instead, the owners of the LLC are supposed to pay a percentage of their profits as taxes.

They can also write off certain startup costs like market research, attorney fees, office space, equipment, and more, up to $5000. States also tax LLCs in the same way as the federal government by taking a share of the profit. But some states also have mandatory LLC franchise tax, like $300 in Delaware and $800 in California.

At the state government level, most LLCs are also required to pay reporting fees, usually every year, with exceptions. Even though the amount and recurrence varies from state to state, the average would be approximately $100 per year.

Registered Agents

Typical costs: $0 to $300

A registered agent acts as the point of contact between the state and the LLC, accepts lawsuits and other legal documents on the LLC’s behalf, and can also accept office mail. As long as they reside in the same state as the LLC and are available during business hours, any adult can be made a registered agent.

Since anyone can become a registered agent, there is no fixed cost per se. Service providers can also serve as your registered agent for a fee of $100 to $300 annually.

Different Types Of LLCs

Different business owners have different sets of goals, and how they want to achieve them. Hence, choosing the type of LLC that matches your approach the best is important. Although the process of registering each type is similar, the difference is that not all states recognize all types.

#1 Single Member LLC

Single Member LLC is the best LLC structure for solo entrepreneurs as the setting up cost is low and you have to file for minimal paperwork as compared to other LLC structures. Since there are no team members, even the operating agreement is made with minimal clauses, but the owner can keep their personal assets separate from business assets.

To avoid being personally liable for business debts or lawsuits in the future, you need to mention that the LLC is a different entity from you in the agreement itself. Single-member LLCs are recognized in all the states.

#2 Multi Member LLC

When there is more than one member in an LLC, it simply becomes a Multi Member LLC. Each member has a share percentage in the company as decided during their investment, which should be mentioned in the operating agreement to avoid future conflicts.

The structure is similar to a general partnership, where everyone is responsible for the debts and obligations of the business. However, the main difference is that the personal assets of the members are secure, and they cannot be used to pay business debts or settle lawsuits.

There are two kinds of Multi-Member LLCs.

  • Member Managed LLC - Just like the name suggests, in a Member Managed LLC, the members together manage the LLC. They have complete control over all the operations and take crucial decisions together. In case of conflict, either the majority will be considered or the final say will be of the member with the highest stake in the LLC, and this should be mentioned in the operating agreement beforehand.
  • Manager Managed LLC - In this structure, the members assign someone as the Manager, who is responsible for all the crucial decisions of the LLC. The manager can be any of the members or also someone from the outside, appointed to execute the role of the manager. This structure works best when there are members who want to act like silent investors, or the nature of the business requires someone with more expertise. Whoever the members decide to appoint as the manager, they need to mention it in the operating agreement and sign it.

#3 Family LLC

A family LLC is formed by the family members together, where blood relatives, adopted children, and spouses can be part of the business entity. For taxation purposes, the state treats Family LLCs the same as regular Multi-Member LLCs, but the controlling members are defined by the articles of organization. Similar to Manager Managed LLC, the family members pick one or two members to act as the manager.

#4 Series LLC

In a Series LLC structure, there is a parent or umbrella LLC under which there are smaller units within its control, known as Series LLC or cells. The purpose of one Series LLC is different from another, and each one has its own members, assets, and managers.

The basic idea behind a Series LLC is to create different entities for different ventures or branches and keep one risk-free from the other. For instance, if you have a cafe in location A, and are planning to open a second branch in location B, you can form a series LLC.

Let’s say the second cafe fails, then your first cafe will be free from any financial obligations to the investors of your second cafe. Real estate investors who make several property investments can also form a Series LLC with different properties under different units.

This is a great LLC structure for entrepreneurs who have multiple interests and want to run each one securely, but the only thing is that not all states recognize Series LLCs. The ones that do are Alabama, Arkansas, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Virginia, and Wyoming.

#5 PLLC

Many states require professionals like accountants, doctors, lawyers, and anyone who needs a professional license to practice, to form a PLLC or Professional LLC structure. This ensures that one member is not legally responsible for any malpractice by another member.

The functionality of a PLLC is very similar to that of a regular LLC, keeping the personal assets of the members safe from any business liabilities, and treating taxation similarly as well.

#6 Restricted LLC

If you are based out of Nevada, you can also form a Restricted LLC, which gives the benefits of lower tax rates when transferring assets to family members. The functionality of a Restricted LLC is different from a regular LLC, and it’s better suited for people with various properties than conducting traditional business.

#7 Anonymous LLC

As the name suggests, an Anonymous LLC helps in keeping the identity of its owners, members, and managers anonymous. By keeping the ownership out of public records, an Anonymous LLC helps in protecting the privacy of the owners and minimizing legal liability.

Business owners who want to hide their investment and involvement from the general public for any reason whatsoever can opt for this LLC structure. It’s also known as Private LLC or Confidential LLC and is currently recognized in Nevada, Wyoming, Delaware, and New Mexico.

#8 Real Estate LLC

A Real Estate LLC is an LLC structure specially designed keeping real estate in mind, where the owner of the LLC is separate from the properties owned by the LLC. In the case of rental property, deeds need not be removed at the time of a transition of a property to a different owner. The contracts are solely between the property and tenants and there is no legal involvement of the LLC owner.

Advantages Of An LLC

Even though there are legal structures for a business like sole proprietorship, partnership, and corporation, each of them has its own set of pros and cons. To minimize the cons and maximize the pros, LLC was born as a blend of the good qualities of all three.

Even though the applicable laws for LLCs might differ from one state to another, here are the main advantages of an LLC:

#1 Limited Personal Liability

The biggest advantage of an LLC or Limited Liability Company, as the name also suggests, is limited liability. In a sole proprietorship, if there is any lawsuit or liability against your business, your personal assets can be used to pay it off.

Besides, in a partnership, your personal assets might be at risk due to any actions of your partners as well. But an LLC helps in distinguishing between the business and its owners as two different entities and protects your personal assets against the liabilities of the business.

Unlike the other two legal structures, the creditors can’t go for your house, personal vehicles, personal bank accounts, etc. in case your business is unable to pay off the debts. Hence, an LLC offers the lowest possible risk in any business structure.

However, in some exceptional cases you might be personally liable for business debts like if you have provided a personal guarantee for taking a business loan, the creditors can hold you responsible. Or if there is evidence of fraudulent activities or mixing of business finances with personal finances, you can be held personally liable for your debts.

#2 Tax Benefits

When it comes to taxation, LLCs get to choose from various options on how they want to be taxed. Even though there is no federal tax classification for LLCs, they can choose from the options of taxation ways of sole proprietorships, partnerships, S corporations, or C corporations, depending on which category they fall in.

In a standard corporation, the owners have to face the burden of double taxation. The corporation has to pay corporate taxes on the profits it earns, and then the owners further need to pay taxes on their income.

However, that is not the case with LLCs as they get the benefit of pass-through taxation. Like in sole-proprietorship and partnerships, the owners pay taxes on their final income that they earn as profits through the LLC and don’t need to pay corporate taxes. An LLC has the option to choose from different categories and how it wants to be taxed:

  • Sole Proprietorship (single-member LLC) - A single-member LLC is taxed just like a sole proprietorship, where the owner pays the income tax on the business profits. Since the owner is considered self-employed, they also need to pay self-employment taxes that cover Social Security and Medicare.
  • General Partnership (multi-member LLC) - A multi-member LLC is taxed just like a general partnership, where the partners pay income tax on their share of the business profits, and also self-employment taxes in some cases.
  • S Corporation - LLCs have the option of enrolling themselves as an S-Corporation for tax purposes, wherein the owners draw a salary and they pay payroll taxes on the salaries they earn. The balance of the profits is passed on to the owners as income, and they pay income tax on that amount. The owners do not need to pay self-employment taxes in an S-Corp, and corporate taxes aren’t applicable as well, making it a much-preferred option in terms of taxation. But not all LLCs qualify as S Corp, as they need to meet the IRS requirements for the same.
  • C Corporation - LLCs also have the option to be taxed as a C Corporation where the LLC is treated as a corporation and the corporate rate is applicable for taxation on the business profits. The profits that are distributed amongst the owners will also require them to pay income taxes personally, leading to double taxation, which isn’t there in any of the above options. Self-employment taxes aren’t applicable here as well but members who draw salaries will be required to pay payroll taxes on the salary amount.

#3 Flexibility In Ownership, Management, and Profit Sharing

The concept of profit distribution to owners in an LLC is pretty flexible, and it’s not necessary that they are equally distributed or even according to the ownership share. It’s possible for one owner to earn a higher percentage of profits than the other owner even if both of them have equal interests in the LLC, if one invests more time or labor in the business.

There is a lot of flexibility with ownership and management as well in an LLC. Corporations have a fixed management structure consisting of a board of directors that looks after the company policies and how the business is functioning. But an LLC can be managed by its own members, or even a manager appointed by them and doesn’t require a board of directors.

Even the owners of a corporation, who are the shareholders, are required to meet from time to time to conduct business and elect directors, and so on. LLCs aren’t restricted like that and they have a lot of freedom in how they want to run their business and make decisions.

There is no limit on the number of members an LLC can have and they can be individuals, partnerships, trusts, or corporations. Unlike S Corporations, where there is a restriction on who can be a shareholder like there can’t be foreign shareholders, corporates can’t be shareholders, and also, there can’t be more than 100 shareholders.

#4 Lesser Formalities

The limited liability benefit is there in LLCs and Corporations both, but the amount of paperwork and formalities required in a corporation is much more than in an LLC. Besides just filling out a short document for formation, you are just required to file an operating agreement and the articles of organization, for an LLC.

You don’t even need to create this from scratch as you can find the templates online. The only other thing you need is the perfect domain name for your LLC and you can find a unique and memorable LLC name with Namify’s Domain Name Generator.

The operational complexity is much lesser, you aren’t required to hold shareholder meetings annually, and you don’t need to file an annual report every year, making LLC a rather convenient format.

Why Does A Small Business Need An LLC

A small business needs an LLC over the other kinds of legal structures for the very same benefits that we shared above. Starting a small business is a huge deal for an aspiring entrepreneur, and gathering the funds is difficult.

Unfortunately, if the business fails or there is a lawsuit against the business, the owner could lose their house and personal assets as well if it’s a sole proprietorship. The amount of risk that comes with it, is reason enough for a small business owner to protect themself from being personally liable for the business debts.

But registering the business as a corporation requires a lot of legal formalities and requirements, which is not ideal for a small business. You don’t want to distribute ownership in the form of shares and have shareholders, call them for annual meetings, file tons of paperwork, and appoint a board of directors to run the business, just for a small business.

Moreover, you would also have to go through double taxation in a corporation. You need to pay corporate taxes on the business profits first, and then pay income tax on your business income that comes from the very same profits that you already paid taxes on.

An LLC brings the best of both worlds where you have limited liability like a corporation, but lesser paperwork and management, and pass through taxation like a sole proprietorship. Even if you are not starting a business alone, and have a few partners, LLC would be a better choice than a general partnership for the same reasons.

You won’t be personally liable for any business debts, in case another partner made a mistake or did some wrongdoing fraudulently. And if you agree to invest more time and effort than another partner, you can be eligible for more profits, and document it beforehand in the operating agreement.

So to get all kinds of benefits, a small business would need to be registered as an LLC. Setting up a new small business can get overwhelming, even more so for a fresh entrepreneur, and registering it as an LLC can make things a little more convenient and beneficial. If you’re setting up a business and looking for the perfect name, try our business name generator. You can also try some of our other name generators — brand name gen, startup name gen, blog name gen, and more.

What Kind Of LLC Is Best For A Small Business

After going through this guide on LLCs, you would have concluded one thing, that an LLC is the best kind of legal structure for a small business. With the benefits of limited liability like a corporation, and lesser formalities and pass-through taxation like sole proprietorship and partnership, LLC proves to be the best option for small businesses.

But the answer to what kind of LLC is best for a small business isn’t one. As we mentioned above, there are various types of LLCs and each type is suited for a particular purpose or requirement. Depending on what your small business is like, you can choose whichever fits your bill the best:

  • If you are planning to start a business alone, Single Member LLC is what you need to go for.
  • If you have partners along with you, then you need to go for a Multi Member LLC. Even in that, if you want to manage the business by yourself then go for Member Managed LLC. And if you and your partners decide to appoint a Manager amongst yourselves or from a third party, you should go for a Manager Managed LLC.
  • If you are starting a family business with other members of your family, then Family LLC would be the best option for you.
  • If you want to create different branches or units of the business and manage them separately, then go for a Series LLC.
  • If your business requires you and your members to have a professional license to practice like in the case of accountants, legal advisors, medical advisors, and more, PLLC or Professional LLC is the one for you.
  • If you or any of your members want to conceal their involvement or investment in the business, starting an Anonymous LLC can help you achieve that.
  • If you are starting a real estate business and it will involve buying, selling, leasing, and renting a lot of real estate properties, then you should go for a Real Estate LLC.

How To Start An LLC In Different States (Cost and Laws)

Once you have gone through our guide, it won’t be difficult for you to start an LLC, but one thing to keep in mind is that different rules might be applicable for different states. For instance, the cost and laws applicable for you to start an LLC in New York might be different from that in California.

Before you proceed, make sure you have a great domain name already registered for your LLC. You can go to Namify’s Domain Name Generator and find the perfect name! Be sure to read through the guide on the page to know the best way to decide on a domain name.

There are mainly two types of costs involved with starting an LLC:

  • LLC Filing Fee - The fee paid to the State at the time of filing the documents for the purpose of starting an LLC, is called the LLC Filing Fee. It varies from state to state and is just paid once during the initial phase.
  • LLC Annual Report - Many states demand the LLC to submit a report usually annually, and sometimes biennially and there is a fee incurred everytime. This is an ongoing fee and it makes sure that the LLC continues to be in compliance and in good standing.

Even the Limited Liability Company Act or LLC Act can vary from state to state. The LLC Laws of each state are mainly broken into 3 sections:

  • State body of law
  • Main title (Some have a Subtitle as well)
  • LLC Act

To help you understand we have shed light on the cost and laws of starting an LLC in some of the states below:

  • How To Start An LLC In Texas - The law applicable for starting an LLC in Texas is the Texas Statutes. In that, you will need to consider the “Title 3 - Limited Liability Companies”, and under the “Business Organizations Code”, you will find the LLC Act in “Chapter 101 - Limited Liability Companies”. The one-time LLC filing fee for Texas is $300, and whether the LLC annual report is required or not, is dependent on the gross annual revenue but you would need to file a Public Information Report and a No Tax Due Report each year.
  • How To Start An LLC In California - The statute applicable for starting an LLC in California is the Corporation Code under California Codes. The Title is “Title 2.6 under the California Revised Limited Liability Company Act” which will be applicable. People who want to start an LLC in California before June 2023 are in luck because California passed a new Budget Act where they waived the LLC filing fee from July 1, 2021, to June 30, 2023. Besides that, you will need to pay a California Annual Franchise Tax of $800 annually and file a Statement of Information every 2 years for just $20.
  • How To Start An LLC In Florida - For starting an LLC in Florida, you will need to consider “Title XXXVI - Business Organizations” under the Florida Statutes. The applicable LLC Act is the Florida Revised Limited Liability Company Act, wherein you will need to look at “Chapter 605”. The LLC filing fee will cost you $125 and you will need to file the LLC annual report for $138.75 every year.
  • How To Start An LLC In Michigan - If you are planning to start an LLC in Michigan the LLC law would be Michigan Compiled Laws, and the Title would be “Chapter 450 - Corporations”. And you will have to consider “Act 23” of the Michigan Limited Liability Company Act. The costs will come out to $50 for filing the first time, and $25 annually for the annual report.
  • How To Start An LLC In NC (North Carolina) - The law applicable for starting an LLC in North Carolina is the North Carolina General Statutes, and you further need to consider “Chapter 57D” of the North Carolina Limited Liability Company Act. Filing for the documents the first time will cost you $125 and then you need to spend $200 every year for the annual report.
  • How To Start An LLC In Ohio - To start an LLC in Ohio, you need to look at “Title 17 - Corporations and Partnerships” of the Ohio Revised Code, and the LLC Act is “Chapter 1706 - Revised LLC Act”. If you’re wondering how much does it cost to start an LLC in Ohio, it’s pretty affordable and cheaper than most other states. The LLC filing fee is just $99 and the great part is that, neither do you need to file an information report every year, nor do you need to spend any money on it.
  • How To Start An LLC In GA (Georgia) - The law that will apply for starting an LLC in Georgia is Georgia Code, and under it, you need to look at “Title 14 - Corporations, Partnerships, and Associations”. You need to further look at “Chapter 11 - Limited Liability Companies”, to understand the intricacies. Even though the filing fee is as cheap as $100 in Georgia, be prepared to spend $50 every year on the LLC annual report.
  • How To Start An LLC In Illinois - The applicable law or statute for starting an LLC in Illinois is the Illinois Compiled Statutes, the Title is “Chapter 805 - Business Organizations”, and the LLC Act to be considered is “Act 180 - Limited Liability Company Act”. The initial LLC filing fee is $150 and the ongoing annual report filing fee is $75.
  • How To Start An LLC In NY - If you are starting an LLC in New York, you should consider the Limited Liability Company Law under the Consolidated Laws of New York. Even though the one-time LLC filing fee of $200 seems a little high, the LLC annual report needs to be filed every alternate year, and that too for just $9.
  • How To Start An LLC In PA (Pennsylvania) - The law or statute applicable when you start an LLC in Pennsylvania is the Pennsylvania Consolidated Statutes, and the Title is “Title 15 - Corporations and Unincorporated Associations”. You would further need to look at “Chapter 89 - Limited Liability Companies”, to know the guidelines. The one-time LLC filing fee will cost you $125 but the state requires you to file the report only once in 10 years and that will also cost you just $70.

Final Thoughts

So, that’s how we conclude our detailed guide on how to start an LLC in the United States. We told you what exactly an LLC is and how it is so different from all the other legal business structures.

We have covered all the advantages of an LLC and why any small business should prefer registering as an LLC over any other structure. We shed light on the different types of LLCs and which kind of business should go for which one.

Different states have different laws that apply to LLCs, and you need to go through the specific laws and acts of your state, as we listed above. Even the costs differ from state to state when starting an LLC, so the exact cost would depend on the state you are in.

All that you need to do now is file for your LLC with your state and pick a unique name for it. You can find a unique and memorable LLC name with Namify’s LLC name generator, and fill out the necessary documents with it.

Once you have completed all the formalities, it’s time to get to business. Good luck!

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