How to Start an LLC in 5 Easy Steps | 2023 Guide

How much it costs to start an LLC depends on the state your LLC is formed in.

This means it costs between $30 and $350 to file the Articles of Organization (the document that creates an LLC). As of 2023, the average cost to form an LLC in the US is $132.

After your LLC is formed, you’ll also have ongoing fees to pay like an Annual Report, taxes, and any business licenses or permits your LLC needs to operate.

As of 2023, the average LLC Annual Report fee in the US is $91, but this fee can range from $0 to upwards of $200 in some states. The other ongoing fee amounts vary widely by state, industry, business activity, and business income.

You can check the LLC costs for your state in LLC Costs by State.

How long it takes to form an LLC depends on:

• the state where you form the LLC
• whether you file the paperwork online or by mail, and
• whether you pay extra for expedited service

If you form your LLC online, most states process your LLC immediately, or within 2 weeks.

And if you form your LLC by mail, most states take anywhere from a few business days to several weeks.

That said, you can pay extra to get your LLC formation expedited in nearly every state.

And you can check How long does it take to get an LLC for processing delays in all 50 states.

Getting an EIN Number from the IRS is completely free.

If you apply online, it takes 15 minutes to get an EIN from the IRS website.

If you apply by mail or fax, it can take 1-3 months.

You’ll want to open a business bank account for your LLC.

This makes accounting and record-keeping much easier for your business income and business debts.

Having a separate business bank account also maintains your personal liability protection. And it does this by keeping your business assets and income separate from your personal assets and income.

Good news, most states don’t require a state general business license for a Limited Liability Company.

Local and Industry-specific Requirements

However, depending on where your LLC is located, you may need a local business license or permit for your business entity.

For example, if you want to start a daycare, you may need a business license from the city or county.

If your LLC will collect sales tax on taxable goods or services, you will likely also need a Seller’s Permit. It’s simply a permit that authorizes you to collect sales tax and pay it to the state.

And businesses in some industries are required to get federal, state, or local licenses that are specific to that industry (like a liquor license or commercial fishing license).

You can learn more in our state-by-state guides, linked above on this page.

Most LLCs are required to file an Annual Report every year.

The Annual Report keeps your LLC in good standing with the state.

Note: In some states, the Annual Report is called the Annual Renewal or the Annual Fee. These mean the same thing.

That said, some states require you to file your LLC’s report every 2 years instead (called a Biennial Report). Biennial Reports work the same way that Annual Reports do. They’re just filed every other year instead of every year.

How much does an LLC Annual Report cost?

Most Annual Reports cost between $30 and $200 per year.

Having said that, a few states charge $300 or more per year.

When is the Annual Report due?

The Annual Report due date varies by state, but there are 3 main methods the states use to decide when Annual Reports are due:

Many states use your LLC’s effective date for your Annual Report due date. (You can think of the effective date as being your LLC’s birthday).

Some states use a quarterly system to determine the due date for your report.

And others use the same date for every LLC in the state.

When is my first Annual Report due?

Your first Annual Report is usually due the year after your LLC was approved.

For example, if your LLC was approved on February 15, 2023, your first Annual Report is due in 2024.

How do I file my LLC Annual Report?

You can file your LLC’s Annual Report online or by mail in most states. We recommend the online filing because it’s easier to complete.

You can check our table of LLC Annual Fees by State for your state’s LLC Annual Report information. It includes your state’s fee amount, due date, the name of the form, and the name of the state agency you’ll need to file it with.

LLCs don’t pay taxes to federal and state governments.

Instead, the LLC Members pay the taxes for the LLC as a part of their personal tax return.

How will my LLC be taxed?

By default, a Limited Liability Company is taxed by the IRS based on the number of owners your LLC has:

• A Single-Member LLC is taxed like a Sole Proprietorship.
• A Multi-Member LLC is taxed like a Partnership.

Alternatively, you can ask the IRS to tax your LLC like a C-Corporation or S-Corporation.

Married Couples: Instead of having your LLC taxed as a Partnership, married couples can elect to be taxed as a Single-Member LLC (aka Qualified Joint Venture LLC). This is only allowed in community property states.

Besides federal taxes, there are also state and local income taxes – and sales tax.

Learn more about LLC taxes in How are LLCs taxed.

The first benefit of an LLC is protecting your personal assets. Meaning, if your business is sued, your personal assets – like your home, cars, and bank accounts – are protected.

This personal liability protection applies to all LLC owners (called LLC Members). It doesn’t matter if your LLC has one Member, or several Members. All of the LLC owners are protected from the business debts and liabilities.

This liability protection wouldn’t apply if you operate as a Sole Proprietorship or Partnership. With these types of informal business structures, the business owners aren’t protected in the event of a lawsuit.

For that reason, LLCs are a much more popular business entity structure.

Another benefit is LLC pass-through taxation. This means the LLC itself doesn’t pay income tax. Instead, the profits “pass through” to the LLC Members. And for federal tax purposes, the LLC Members pay the taxes on the LLC profits using their personal tax returns.

State income taxes are very similar, since the state honors the federal tax treatment of your LLC.

In this way, LLCs can save you money by avoiding the double-taxation that comes with Corporations.

No, LLCs themselves don’t pay taxes to state and federal governments.

Instead, the LLC Members pay the taxes on the LLC’s profits on their personal tax returns.

We explain this in-depth in our LLC tax lessons, linked above.

Choosing a state to start an LLC depends on where you live – and where you’re doing business.

Meaning, you should start your LLC in the state where you live or do business. While many websites talk about tax rates and advantages of certain states, none of that applies if it’s not the state where you live and do business.

For example, if you form an LLC in Delaware, but live in and conduct business in Maryland, you’ll also need to register your Delaware LLC in Maryland as a Foreign LLC (and pay extra fees). And you’ll end up paying Maryland taxes anyway. This ends up leading to more costs and more headaches with no advantages.

In summary, if you live in and conduct business in Delaware, then yes, Delaware is a good state to start a business. If you don’t live in and do business in Delaware, then no, Delaware isn’t a good state to start a business.

Real estate exception: If you’re purchasing real estate outside of the state where you live and do business, you should form your LLC in the state where the property is located.

For more information, please see Best State to Form an LLC.

Yes, you can file an LLC yourself. And we make it super easy using our free step-by-step LLC guides.

It’s important to understand the state-specific requirements for your LLC.

So our guides cover everything from state-specific naming requirements, to filing your LLC and keeping up with ongoing requirements (like your Annual Report).

You can access them using the drop down on the page above.

Yes, you can file your LLC online in nearly every state. (There are a couple of states where you can only file by mail. However, they should have an online filing system in the next 1-2 years.)

How much it costs to get an LLC and how long it takes the state to approve your LLC both vary by state.

That said, the average Articles of Organization filing fee is $132.

While they are both business structures (also called legal entities), there are a few differences between an LLC and a Corporation,

These differences include what the business structure is used for, how ownership works, and how the business is required to run.

What is an LLC?

An LLC is a business structure used to run a business or hold assets (like a boat, real estate, or aircraft).

And they are specifically designed to protect your personal assets from any business debts or liabilities.

The owners of an LLC are called “members”. An LLC can be owned by only one member (called a “Single-Member LLC”), or it can be owned by two or more members (called a “Multi-Member LLC”).

What is a Corporation?

On the other hand, a Corporation is a business structure that is most often used to run a large company with shareholders and investors. (Corporations aren’t the best choice for real estate.)

The owners of a Corporation are called “shareholders”.

And after you form a Corporation, you’re required to elect a Board of Directors to oversee the company in general. And then you must elect Corporate Officers who will actively run the business.

Is an LLC better than a Corporation?

Whether an LLC is a better choice than a Corporation depends on how you want to run your business.

Corporations are best-suited for large companies that need to raise large amounts of money.

However, they come with stricter requirements, like holding annual meetings, recording meeting notes, and issuing shares to stockholders.

Corporations can be complex and expensive to maintain.

Corporations are also generally subject to “double taxation”. Meaning, the business profits are taxed twice – once at the business level and again at the personal level.

On the other hand, LLCs are the ideal choice for running a business and holding assets.

LLCs aren’t required to issue shares to stockholders – because they don’t have any.

LLCs are easy to understand and much less expensive to maintain.

And, LLCs have “pass-through taxation”. Meaning, the business profits flow through the LLC and are only taxed at the personal level. So your business profits only get taxed once.

For more information, see LLC vs Sole Proprietorship vs Corporation.

Technically, an LLC can’t be an S-Corp. That said, your LLC can choose to be taxed like an S-Corp.

This is because an S-Corp isn’t a business structure like an LLC or C-Corporation.

Instead, an S-Corporation is a tax election.

Meaning, your LLC can’t be an S-Corp, but it can choose the S-Corporation tax election for paying state and federal income taxes.

In other words, you can tell the government to have your LLC taxed as an S-Corp.

And you make the S-Corporation tax election by filing Form 2553 with the Internal Revenue Service (IRS).

That said, we don’t recommend choosing the S-Corporation tax election until your business is making at least $75,000 per year, or unless it saves you a lot on self-employment taxes.

Having said that, different tax professionals have different opinions on when (if ever) it makes sense to have your LLC taxed as an S-Corp.

Please speak with an accountant before filing any forms with the IRS. If you need help finding one, we’ve made a list of Accountant Recommendations in all 50 states.

Yes, a business run as a Sole Proprietorship can be converted into an LLC.

This is done by filing Articles of Organization with your state’s Secretary of State’s office.

How does forming a Limited Liability Company affect my tax classification?

How your LLC affects your tax classification depends on the number of LLC Members.

If your Sole Proprietorship is turned into a Single-Member LLC, your LLC will automatically be taxed as a Sole Proprietorship.

If your Sole Proprietorship is turned into a Multi-Member LLC, your LLC will automatically be taxed as a Partnership.

This is called being taxed in your default status. Meaning, the IRS treats all LLCs this way for tax purposes, unless the LLC Members request otherwise.

The IRS uses this method because LLCs are solely a business entity structure, not a tax classification.

Said another way, since LLCs don’t have their own tax classification, the government automatically taxes all LLCs based on the number of Members in the LLC.