How to Start an LLC: A Complete Guide With Expert Legal Advice

Editor's note: This post was originally published March 17, 2020, and has been updated for accuracy, comprehensiveness and freshness on April 14, 2025.

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Are you considering starting your own business? One of the most important early decisions you'll make is choosing the right business structure. Among the options available, forming an Limited Liability Company (LLC) has become increasingly popular for entrepreneurs and small business owners—and for good reason.  

What you’ll learn in this guide

This comprehensive guide will walk you through everything you need to know about how to start an LLC, including:

• What an LLC is and why it might be the right choice for your business
• A step-by-step process for how to create an LLC
• Expert advice from LegalShield provider attorneys on common pitfalls to avoid
• State-specific requirements you need to know
• Essential compliance tips to keep your LLC in good standing

Understanding LLCs and their benefits

Before diving into the process of how to register an LLC, let's understand what exactly an LLC is and why it might be the right choice for your business.

An LLC is a business structure that combines the personal liability protection of a corporation with the tax flexibility and operational simplicity of a partnership or sole proprietorship.

"In general terms, an LLC is a better option for small businesses who want the ease of set-up, more straight-forward taxation pass-through structure and managerial flexibility than with a corporate entity, while still maintaining the personal liability insulation," explains Bill Thrush, Managing Partner of Friedman, Framme & Thrush.

Key benefits of an LLC

Obtaining an LLC provides several advantages for business owners:

• Personal liability protection: Your personal assets are generally protected from business debts and lawsuits
• Tax flexibility: Choose how your business is taxed (pass-through taxation by default)
• Less paperwork and formality: Fewer compliance requirements than corporations
• Management freedom: No requirement for boards of directors or officers
• Credibility: Enhanced professional image with customers and partners

Potential drawbacks

While there are many benefits to LLC setup, there are some considerations to keep in mind:

• Self-employment taxes for members
• State-specific regulations and fees that vary widely
• Limited options for raising capital compared to corporations

How to start an LLC: 7 essential steps

What to know about starting an LLC is that while requirements vary by state, these seven fundamental steps apply nationwide:  

1. Choose your business name

Your business name is crucial both for legal compliance and marketing. When selecting a name, make sure you do these important things:

• Check availability through your Secretary of State's website
• Ensure the name complies with state regulations
• Most states require your name to include "LLC," "Limited Liability Company," or similar designations
• Avoid restricted words (like "bank" or "insurance")
• Consider trademark considerations
• Secure a matching domain name if possible

"We start by meeting with the LegalShield Member, figuring out what type of business they will be doing, how many employees they will be having, etc. Then we check with the Secretary of State to see if the name is available," shares Andy Joyce, Partner at Morrow Poppe Law Firm.  

2. Designate a registered agent

Every LLC needs a registered agent—a person or company designated to receive legal documents on behalf of your business.

"Choose a registered agent – someone who will act as the liaison between your business and the general public," advises Bill Thrush.

Requirements for registered agents:

• Must be at least 18 years old
• Must have a physical address (not P.O. box) in the state where your LLC operates
• Must be available during normal business hours
• Can be yourself, another LLC member, or a professional registered agent service

3. Prepare an LLC operating agreement

While not always legally required, an operating agreement is strongly recommended.

"The operating agreement is probably where the largest pitfalls live," warns Andy Joyce. "Many people overlook this step and simply say that they will iron out the details once the company is established and profitable. By then, it's too late. The operating agreement is essentially the Bible for your company."

Your operating agreement should include:

• Ownership percentages and member roles
• Voting rights and decision-making procedures
• Profit and loss allocation
• Meeting requirements
• Rules for adding or removing members
• Dissolution procedures

Joyce emphasizes: "By spending time and energy working through those issues on the front end, it can save you thousands of dollars litigating it on the back end."

4. Obtain an EIN and set up business accounts

An Employer Identification Number (EIN) is like a Social Security number for your business. As Thrush explains, you'll need to "Set up your back office with Employer ID Number or Tax ID number, Bank Account, Accounting software, and any insurance policies you may need."

The EIN is essential for:

• Tax filing purposes
• Hiring employees
• Opening a business bank account
• Applying for business licenses

You can obtain an EIN free through the IRS website in minutes.

5. File your articles of organization

The articles of organization (sometimes called a certificate of organization or a certificate of formation) is the official document that creates your LLC. You can obtain this form from your state’s Secretary of State.

When filing your articles, you'll typically provide:

• Your LLC's name
• Business purpose
• Principal address
• Duration of the LLC (often perpetual)
• Registered agent information
• Management structure (member-managed vs. manager-managed)

Filing fees vary by state, ranging from about $50 to $500. Processing times also vary depending on your state and whether you choose expedited processing.

6. Obtain necessary business licenses and permits

Depending on your industry and location, you may need various licenses and permits to legally operate:

• General business licenses
• Professional licenses
• Health department permits
• Zoning permits
• Industry-specific certifications

Research requirements at the federal, state, and local levels to ensure complete compliance.

7. Maintain your LLC's active status

What to know about starting an LLC is that formation is just the beginning. To keep your LLC in good standing:

• File annual or biennial reports (requirements vary by state)
• Pay ongoing fees and taxes
• Maintain required business licenses and permits
• Keep your registered agent information current
• Hold regular member meetings (if specified in your operating agreement)
• Keep business and personal finances strictly separate

"The main mistake that people make is not taking ALL of the various requirements, large and small, seriously," cautions Thrush. "It is not for you as a business owner to judge whether some requirements are important, and some are not. They are all important. And if you miss them, the consequences could be the invalidity of your business entity, which could put your personal assets at risk to your creditors."

Understanding state-specific LLC requirements

When learning how to create an LLC, remember that requirements vary significantly by state:

• California requires an $800 annual franchise tax for LLCs.
• New York has a publication requirement for new LLCs.
• Nebraska requires publication in local newspapers.
• Texas has a franchise tax based on revenue.
• Florida requires an annual report by May 1st each year.
• Oklahoma and a few other states require an annual fee to keep your LLC active and in good standing.

Joyce notes the Nebraska process: "In Nebraska, we start by meeting with the member, figuring out what type of business they will be doing, how many employees they will be having, etc. Then we check with the Secretary of State to see if the name is available, file the necessary documents to form the company with the Secretary of State and then publish notice with a local paper to adhere to Nebraska statute."

LLC vs. corporation: understanding the differences

When obtaining an LLC, it's important to understand how it differs from a corporation:

"Both entities are very different, but in general terms LLCs are owned by individuals called members, and corporations are owned by shareholders who own stock in the company," explains Thrush. "LLCs taxed at the individual level (this is what is referred to as the tax pass-though) where the corporation is taxed as a corporation and again at the individual shareholder level (with some exceptions). LLCs are generally easier to manage, as they do not require officers or boards of directors to run them and have fewer regulations on record keeping and compliance requirements."

Joyce adds: "For 95% of the companies that we are forming for people, we are forming LLC's and then they can elect to have it taxed as an S-Corp or as a partnership. Usually that is a question that we defer to their CPA's on as the main difference deals with self-employment tax and other expenses."

Tax considerations for your LLC

One major advantage of setting up an LLC is tax flexibility:

• By default, LLCs are "pass-through" entities
• Single-member LLCs report business profits and losses on personal tax returns
• Multi-member LLCs file informational returns, with members reporting their share on personal returns
• LLCs can elect S-Corporation or C-Corporation tax treatment if beneficial

Depending on your business activities, you may also need to handle:

• Sales tax collection and remittance
• Payroll taxes if you have employees
• Self-employment taxes on your earnings
• State-specific business taxes

The value of professional legal help

Both attorneys strongly emphasize the importance of getting professional legal assistance when setting up an LLC.

"The financial waste in failing to use legal counsel is incalculably high," says Thrush. "Think about the amount of time the business owner will spend educating themselves on what must be done, and then actually doing those things. Every minute spent doing those things is a minute lost in terms of working in your business and generating revenue."

Joyce quantifies the potential costs: "It can vary from a few hundred dollars to refile documents correctly to hundreds of thousands of dollars if a buyout mechanism isn't spelled out in the operating agreement or if minority interests aren't adequately protected in the operating agreement."

His top advice? "Your team of accountants, lawyers and bankers are like toilet paper. Quality matters and if you skimp, you'll regret it."

Common legal pitfalls to avoid

When learning how to register an LLC, be aware of these common pitfalls:

1. Failing to separate business and personal finances

Maintaining a clear separation between your personal and business finances is crucial for preserving your liability protection. Open a separate business bank account and avoid commingling funds.

2. Skipping or rushing the operating agreement

As Joyce emphasized, the operating agreement is critical for avoiding future disputes. Take the time to create a comprehensive agreement that addresses potential scenarios before they arise.

3. Not understanding tax obligations

Consult with a tax professional to understand your specific tax requirements and consider whether electing a different tax status (such as S-Corp) might benefit your business.

4. Overlooking state-specific requirements

Each state has unique requirements for LLCs. Research your state's specific regulations or consult with a local attorney to ensure compliance.

5. Not keeping up with ongoing requirements

Remember that obtaining an LLC is just the beginning. Stay on top of annual reports, fees, and other ongoing compliance requirements to maintain your good standing.

Is an LLC right for your business?

What to know about starting an LLC is that while it provides significant benefits for many small business owners, it's not the only option. Consider:

• Your business's growth plans
• Tax implications for your specific situation
• Industry-specific liability concerns
• State fees and compliance requirements

"This decision depends in large part on what kind of business you are starting and what your short and long term business goals are," advises Thrush.

Ready to form your LLC?

Now that you understand how to start an LLC, you're ready to take the first step toward establishing your business on solid legal footing.

"Have a lawyer and USE THEM," Thrush recommends. "Lawyers are highly skilled and trained people that are very good at what they do. I get that lawyers can be expensive. Most valuable things in business that are worth having come with an expense. But as the saying goes, an ounce of prevention is worth a pound of cure."

Whether you're just starting to research business structures or you're ready to begin the formation process, consulting with a qualified business attorney can help ensure your LLC is properly established and positioned for success.

LegalShield is here to help you achieve your business goals while staying on top of the legal requirements involved! Simply sign up for a LegalShield plan and include the Small Business Add-on that matches your needs. Your LegalShield provider law firm can assist with document review and research, bill collections and more. Take care of your business while LegalShield and our provider lawyers take care of the rest.

Pick the LegalShield plan that works for you.

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Written by Elyse Dillard, Content Specialist at LegalShield. Elyse creates educational resources about legal and identity theft protection services. She works to make complex legal concepts more accessible to readers and has contributed to numerous articles on the LegalShield blog.

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