While state laws might vary, you can generally follow these steps to start an LLC. For information on how to set up an LLC in your state, see our 50-state guide to forming an LLC.
The name of your LLC must comply with your state’s rules. While these rules differ, most states require your LLC’s name to:
Often, for a small fee, you can reserve your LLC name for a short period of time until you file your articles of organization.
For additional information, read our FAQ on choosing a business name.
LLCs are required to have a registered agent. This agent is an individual or company that agrees to accept legal papers on behalf of the LLC if someone sues the company. The registered agent must have a physical street address in the state where the LLC is registered. Most states maintain a list of private service companies (commercial registered agents) that will act as agents for service of process for a fee.
An LLC member can act as a registered agent for the LLC as long as they have an address within the state that the LLC is registered in.
To start your LLC, you must file articles of organization with your state's corporate filing office, often the secretary of state. Some states (including Delaware, Mississippi, New Hampshire, New Jersey, and Washington) use the term "certificate of formation" instead. Two other states (Massachusetts and Pennsylvania) call the document a "certificate of organization."
You can form your LLC in your own state or in another state. (For additional information on which state to choose, read about where to form your LLC.)
To learn about the specific requirements of forming an LLC in your chosen state, choose your state from the list below:
You can usually complete the articles of organization online or by using a form available on your secretary of state’s website. You’ll usually need to provide the following basic information in your articles:
You'll probably have to pay a filing fee when you submit the articles. In many states, the fees are modest—typically around $100.
If you still have some questions before you’re ready to submit your official paperwork, read our article on the six questions to ask before forming an LLC.
Most small LLCs choose to be managed directly by their members, When all members participate in the day-to-day business operations, the LLC is considered to be “member-managed.”
But LLCs can instead choose to appoint one or more people or entities to manage the LLC— somewhat like when a board of directors oversees a corporation. The members can select a member or nonmember to be a manager. When the members appoint someone to manage the business, the LLC is considered “manager-managed.”
Managers vote on key issues such as:
For more information on the different management structures, read our article on member-managed vs. manager-managed LLCs.
Even though most states don’t require it, you should create an operating agreement when setting up your LLC. This agreement is an internal document that establishes how your LLC will be run, including how the LLC will be managed. In the absence of an operating agreement, state law will govern how your LLC operates.
All of the paperwork and procedural steps to start a limited liability company can be done online using Nolo's Online LLC Formation service.
Additional tax and regulatory requirements could apply to your LLC. You should review the following requirements when starting your LLC.
EIN: If your LLC has more than one member, it must obtain its own employer identification number (EIN) from the IRS—even if it has no employees. If you start a single-member LLC, you must obtain an EIN only if the LLC will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You can obtain an EIN online by completing an EIN application on the IRS website.
Professional and business licenses: Depending on the type of business and where it’s located, your LLC might need to obtain other local and state business licenses. Many professions also require you to apply for and maintain a license. Check with the appropriate state agencies to ensure you’re properly registered, licensed, and permitted to do business in your state. (For more information, read about the legal requirements for starting a small business.)
Sales and employer taxes: In some cases (for example, if you’ll be selling goods and collecting sales tax or if you have employees), you’ll need to register with the appropriate state taxing authority. For more information on LLC tax registration rules, see our state guide to LLC tax and annual filing requirements.
Many states require LLCs to file an annual report with a filing fee. Fees can vary significantly among states so you should check with your corporate filing office for specific information.
You can also review our state guide to LLC tax and annual filing requirements to find out the rules in your state.
To do business in a state other than the state where you formed your LLC, you’ll need to register your LLC in that state and appoint a registered agent. For more information on out-of-state registration requirements, see our state guide to qualifying your LLC to do business in another state.
If you have experience starting a business, you can probably form your LLC on your own. But if you’re starting your first business or you run into complex problems along the way, consider talking to a business attorney. They can help you review your state’s LLC laws, draft your operating agreement, and create a tax-compliance plan.
]]>Being treated as a disregarded entity generally creates no special problems for one-owner LLCs. However, special rules apply to the ability to deduct organizational expenses for a single-member LLC.
"Organizational expenses" are the costs you incur to form your LLC, including legal fees for drafting LLC articles of organization and operating agreement, accounting fees for setting up the LLC and its books, state LLC fees, and other filing fees.
Organizational expenses are capital expenses that ordinarily are not currently deductible in a single year as business operating expenses. However, a special tax provision allows such expenses to be deducted in a single year by corporations and owners of LLCs and partnerships with two or more members.
Such businesses may deduct up to $5,000 of organizational costs in the year the business begins and amortize (deduct) the remainder over 180 months beginning in the month the business begins. If organizational costs exceed $50,000, the $5,000 deduction is reduced dollar for dollar by the excess over $50,000. (IRC Sec. 248(a), 709(b)(1).)
These tax law provisions do not apply to one-person LLCs because they are disregarded entities. The IRS says that one-person LLCs may deduct in a single year organizational costs that do not exceed $5,000. However, if a single member LLC’s organizational expenses exceed $5,000, no portion of the expenses is deductible. Instead, the entire amount must be capitalized. This means they would not be deductible until the LLC is dissolved. (Treasury Regs. Secs. 1.263(a)-5(d)(1) and (3).)
Example 1: Larson forms a single-member LLC to run his consulting business. He incurs $800 in expenses for the LLC operating agreement, articles of organization, and filing fees. Because these expenses are below the $5,000 threshold, he may deduct the entire amount the first year the LLC is in business.
Example 2: Assume that Larson incurs $6,000 in legal expenses to set up his one-member LLC. Because this amount is over the $5,000 threshold, none of these organizational costs are deductible or amortizable. Larson must capitalize the $6,000 expense. These costs will only be deductible upon the LLC’s dissolution and termination.
The bottom line is that if you form a one-member LLC, you shouldn't spend more than $5,000 in organizational expenses. For the great majority of one-member LLCs, this shouldn't pose a problem.
]]>However, great business ideas are not limited to adults, minors (those under 18 years of age in most states) have them too. Can you form an LLC if you’re under age 18? Can you even be a member of an LLC if you’re a minor?
To form an LLC, one or more people (or a business entity such as a corporation or LLC) must act as the organizer. The organizer is responsible for setting up the LLC. The organizer’s most important duty to complete and sign the LLC’s articles of organization, and file them with the Secretary of State. Filing of the articles gives the LLC legal life. Typically, the organizer is also an owner of the LLC (called a member), but such membership is not required.
Every state has its own LLC law, and these vary. The LLC laws of some states specifically provide that minors under age 18 cannot serve as organizers to form LLCs. These states include:
The LLC laws of most other states say nothing at all about how old a person has to be to serve as an organizer and form an LLC. These include some of the most popular states for forming LLCs, such as California, Delaware, Nevada, and Wyoming. It appears minors can form LLCs in these states. However, you should check with the Secretary of State of the state involved to make sure; or seek an attorney’s advice.
If you live in a state that does not allow a minor to form an LLC, you can always form your LLC in a state that does allow it. You can then register your LLC in the state where you live or wish to do business. Alternatively, you can have someone over age 18 serve as organizer on your behalf.
An LLC’s members (owners) can be individuals, or other business entities such as other LLCs or corporations. An LLC can have any number of members—anywhere from one to thousands. There is nothing that prevents a minor from being a member in an LLC.
However, practical problems can arise where an LLC has minor members; especially where, as is typically the case, the LLC is member-managed—that is, all the members share responsibility for the day-to-day running of the business.
Problems can arise when minors own LLCs because special legal rules govern the ability of minors to make and break contracts. Although these rules vary somewhat from state to state, most types of contracts entered into by minors are voidable—that is, the minor can choose to either honor or void (end) the contract. If the contract is voided, the minor must ordinarily give back anything of value he or she received from the other party, such as money or property. In most states, however, a minor cannot void a contract for necessities like food, clothing, or lodging. Also, many states don’t permit minors to enter into some types of contracts at all on their own, such as contracts for the purchase or sale of real property.
Because of these special rules, others may be reluctant to deal with an LLC that is owned solely by a minor or that is managed by a minor-member because they fear that any agreements they enter into with the LLC won’t be legally binding. For example, a supplier might be reluctant to extend credit to an LLC owned by a minor for fear that he or she could void the contract.
Another alternative is to adopt a manager-management structure for the LLC. Under this structure the LLC business is run by one or more designated managers. The mangers may be LLC members, nonmembers/outsiders, or a combination of the two. Such managers would be adults, while the minor-members would be left as passive investors not involved in LLC’s day-business operations. In most states, member-management is the default for LLCs. To change this, you must establish a manager-management structure in your LLC’s articles of organization or in a written LLC operating agreement.
]]>A domestic LLC does business in the state in which it was formed. A foreign LLC is an entity that is transacting business in a state other than where it was originally formed. Any LLC that does business outside of its registration state must file a “foreign qualification” to permit it to undertake business in other states. Such issues as increased paperwork, tax treatment, and compliance and disclosure obligations may impact whether you decide to stick close to home or explore out-of-state alternatives.
Many LLC owners opt to file in their home state as a domestic LLC if they are physically located and transact most of their business within that state. For example, if you run a retail boutique and make most of your sales in your home state, it probably makes sense to file your LLC in that same state. If you decide to register your LLC in another state, but run your store in your home state, you will have to register and pay filing fees as a foreign LLC. Like other local businesses, you will still have to comply with state and local laws, taxes. and fees, but will now have the added costs, paperwork, and complexity of complying with another state’s mandates. If your LLC is located within one state and your business transactions occur within that same state, it is typically easier and less costly to file an LLC as a domestic LLC.
Some start-ups plan to transact business in numerous states outside of their home state. If your business strategy focuses on out-of-state business, your LLC might benefit from registering as a foreign LLC depending upon applicable advantages. If you think that might be the case, you may want to consult with an attorney or tax professional to determine if registering as a foreign LLC makes sense for your LLC. Three states are often hailed as business-friendly bases for registering as foreign LLCs.
For more information, see our section on Starting an LLC. You'll find all the information you need to form your LLC and get your business started off on the right foot.
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