Top 10 Things to Know Before Forming an LLC

1. Every State Requires a Registered Agent

Your LLC must maintain a registered agent with a physical street address in the state where it's formed, to receive legal notices and official state mail. You can act as your own agent in most states if you have a qualifying address there, or pay a registered agent service, which also keeps your personal address off the public record.

2. Formation Costs More Than Just the Filing Fee

State filing fees for Articles of Organization range from $35 in Montana to $500 in Massachusetts. That's rarely the only cost: most states also charge an annual report, biennial statement, or franchise tax, from $0 to $500 a year, to keep the LLC in good standing after formation.

3. An EIN Is Always Free

Per the IRS, an Employer Identification Number costs nothing directly from the agency, and most U.S.-based applicants get one immediately through the online application. You'll need it to open a business bank account and file taxes, regardless of whether your LLC has employees.

4. Your Name Needs to Follow State Rules

Your LLC's name must include a designator like "LLC" or "Limited Liability Company" and be distinguishable from other businesses already on file with your state. Check your state's name database before you get attached to a name, and consider whether a matching domain name is available too.

5. Know Your Default Tax Classification

The IRS taxes a single-member LLC as a disregarded entity and a multi-member LLC as a partnership by default, passing profit through to the owners' personal returns. You can later elect S corporation or C corporation tax treatment instead, but you don't have to decide this before you form the LLC itself.

6. An Operating Agreement Is Worth Having Even if Not Required

Most states don't require a written operating agreement by law, though New York is a notable exception, requiring one within 90 days of filing. Even where it's optional, an operating agreement documents ownership percentages, management rules, and what happens if a member leaves, which matters even for a single-member LLC.

7. Liability Protection Depends on You

An LLC shields personal assets from business debts and lawsuits, but only if you keep the LLC's finances genuinely separate: a dedicated bank account, contracts signed in the LLC's name, and no mixing of personal and business funds. Courts can disregard the separation if you skip these basics.

8. You Probably Need More Than Just the LLC Filing

Forming an LLC with the state doesn't automatically cover local business licenses, industry-specific permits, or a sales tax registration if you sell taxable goods. Check your city, county, and industry's specific requirements separately from your state LLC filing.

9. Operating in More Than One State Means Registering Twice

If your LLC does business in a state other than where it was formed, that state generally requires registering there too, as a foreign LLC, with its own fee and its own registered agent. Plan for this if you expect to operate beyond your home state from the start.

10. An LLC Doesn't Replace Business Insurance

Liability protection from an LLC limits your personal exposure to the business's debts and lawsuits; it doesn't protect the business itself from a claim, a fire, or an employee injury. General liability or professional liability insurance, matched to your specific risks, fills that separate gap.

Bonus: Keep Records From Day One

Start keeping a dedicated business bank account, a simple ledger of income and expenses, and copies of every state filing from the moment the LLC is approved. Good records from the start make tax filing easier and are exactly what demonstrates the LLC's separateness from its owner if that separation is ever questioned later.

Bonus: A Registered Agent Service Can Simplify the First Year

Many new owners use a registered agent service specifically for the first year of an LLC's life, since it typically bundles formation help with the agent service and a reminder for the first annual report, reducing the number of separate things a first-time owner has to track.

Research Your Specific State Before You File

Everything above varies by state: fees, annual report requirements, operating agreement rules, and name reservation availability all differ. Check your specific state's current rules directly with its filing agency rather than assuming a figure or requirement from a different state applies to you.

You Don't Need to Decide Everything on Day One

Your tax classification, whether to use a registered agent service, and other decisions can be revisited after formation as your business grows. Don't let uncertainty about every future decision delay getting the LLC filed if you're otherwise ready to start operating.

A Simple Business Can Still Benefit From an LLC

Even a small, low-risk business benefits from the basic separation an LLC provides between personal and business liability, though the recurring state costs are worth weighing against that benefit for a very small side project. There's no one-size-fits-all answer; it depends on your specific risk and revenue.

This Isn't Legal or Tax Advice

This is a general overview, not advice for your specific business. Talk to an attorney or tax professional about your particular situation, especially around tax classification, multi-state operations, or industry-specific licensing requirements before you file.

Give Yourself a Realistic Timeline

Between researching your state's specific rules, choosing a name, lining up a registered agent, and waiting for state processing, forming an LLC properly often takes longer than a single afternoon. Build in enough time before you need the LLC approved for a specific deadline, like signing a lease or opening a bank account.

Revisit Your Checklist After the First Year

Once you've been through one full year with the LLC, including a first annual report and a first tax filing, review what worked and what you'd do differently, such as switching registered agents or reconsidering your tax classification, rather than treating the initial setup as permanent and unexamined.