Forming an LLC: Step-by-Step for Every State

Why an LLC?

A Limited Liability Company (LLC) is the most popular business structure for small businesses, and for good reason. It gives you personal liability protection — meaning your house, car, and personal savings are generally shielded from business debts and lawsuits — while keeping things simpler and cheaper than a corporation.

For contractors, consultants, and service businesses, the LLC is usually the sweet spot. Let us walk through exactly how to set one up.

Step 1: Choose Your State

Most businesses should form their LLC in the state where they physically operate. Forming in Delaware or Wyoming for the "benefits" only makes sense for large companies with investors. If you are a contractor in Ohio, form in Ohio. Forming elsewhere just means paying fees in two states and hiring a registered agent in the formation state.

Step 2: Choose Your LLC Name

Your LLC name must be distinguishable from other businesses registered in your state. Every state requires that the name include "LLC," "L.L.C.," or "Limited Liability Company."

Before you get attached to a name:

Search your state's business name database. Every Secretary of State website has one.
Search the USPTO trademark database at uspto.gov to avoid stepping on a federal trademark.
Check domain availability if you plan to build a website.

Most states allow you to reserve a name for 60-120 days for a small fee while you prepare your filing.

Step 3: Appoint a Registered Agent

Every LLC must have a registered agent — a person or company that accepts legal documents on behalf of your LLC. The registered agent must have a physical address (not a PO box) in the state where your LLC is formed.

You can serve as your own registered agent, but this means your personal address goes on public record and you must be available during business hours to accept service of process. Many business owners use a registered agent service for $50-$300 per year.

Step 4: File Articles of Organization

This is the actual formation document. You file it with your state's Secretary of State (or equivalent office). Most states allow online filing. The document is usually simple — it requires:

LLC name
Registered agent name and address
Principal office address
Names of members or organizers
Whether the LLC is member-managed or manager-managed

Filing fees vary significantly by state:

California: $70 (plus $800 annual franchise tax)
Texas: $300
New York: $200 (plus publication requirement costing $1,000+)
Florida: $125
Wyoming: $100

Processing times range from same-day to several weeks. Most states offer expedited processing for an additional fee.

Step 5: Create an Operating Agreement

An operating agreement is the internal document that governs how your LLC operates. Not every state requires one, but you should absolutely have one regardless. Without it, your state's default LLC rules apply — and those defaults may not match what you want.

Your operating agreement should cover:

Ownership percentages of each member
Profit and loss distribution — how money gets split
Management structure — member-managed vs. manager-managed
Voting rights and decision-making processes
What happens when a member leaves — buyout terms, valuation method
What happens if a member dies — succession planning
How to add new members
How to dissolve the LLC

For a single-member LLC, the operating agreement is simpler but still important. It documents that the LLC is a legitimate, separate entity — not just your alter ego. This strengthens your liability protection.

Step 6: Get Your EIN

Apply for an Employer Identification Number (EIN) from the IRS. It is free and takes about five minutes on the IRS website. You need it to open a business bank account, hire employees, and file certain tax returns. Multi-member LLCs are required to have one.

Step 7: Handle State and Local Requirements

After formation, you typically still need to:

Register for state taxes — sales tax, employer withholding, etc.
Get a business license from your city or county
Obtain trade-specific licenses or permits
Register with your state's workers' compensation board if you hire employees

Step 8: Open a Business Bank Account

Take your Articles of Organization, EIN letter, and operating agreement to a bank and open a dedicated business checking account. This separation of personal and business finances is critical. Commingling funds is one of the fastest ways to lose your liability protection through what courts call "piercing the corporate veil."

Member-Managed vs. Manager-Managed

Member-managed means all owners participate in day-to-day decisions. This is the default and the right choice for most small LLCs.

Manager-managed means you designate one or more managers (who may or may not be members) to run the business. This is useful when you have passive investors who do not want to participate in operations.

How LLCs Are Taxed

By default, a single-member LLC is taxed as a sole proprietorship (Schedule C on your personal return). A multi-member LLC is taxed as a partnership (Form 1065). In both cases, income flows through to the members' personal tax returns.

The powerful thing about LLCs is tax flexibility. You can elect to be taxed as an S-Corp or C-Corp without changing your legal structure. The S-Corp election is especially popular once your income reaches a level where the self-employment tax savings outweigh the additional payroll costs.

Maintaining Your LLC

Formation is not a one-and-done event. To keep your LLC in good standing:

File annual reports — most states require them, with fees ranging from $0 to $500+
Pay franchise taxes if your state levies them (looking at you, California)
Keep your registered agent current
Maintain your operating agreement and update it when things change
Keep business and personal finances separate
Document major decisions with written resolutions

Common Mistakes to Avoid

Skipping the operating agreement. Even single-member LLCs need one.
Commingling funds. This kills your liability protection.
Forgetting annual filings. Your state can administratively dissolve your LLC.
Not getting adequate insurance. An LLC is not a substitute for general liability insurance.
Forming in the wrong state. Delaware is not magic for small businesses.

Bottom Line

Forming an LLC is one of the best things you can do to protect yourself as a business owner. The process is straightforward, the cost is modest, and the liability protection is real. Do not overthink it — just do not skip the operating agreement, and keep your finances separate.