How to Start an LLC in 7 Steps (2026)

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Limited liability companies (LLCs) are one of the most common business structures in the US. LLCs made up 72.7% of all partnerships filed for tax year 2023, according to IRS data. They involve less formality than corporations, can offer flexible tax treatment, and help provide liability protection for personal assets.

This guide covers practical steps for how to start an LLC, what it costs, the benefits and challenges for entrepreneurs, and requirements to be aware of. 

What is an LLC?

A limited liability company (LLC) is a business entity type that protects your personal assets while offering flexible tax options for business income.

LLCs combine elements of different business structures. Like corporations, LLCs are legally separate from their owners. This separates business liabilities from owners’ personal assets, subject to applicable law. 

But LLCs also offer flexible tax treatment. By default, they enjoy the same pass-through taxation as sole proprietorships and partnerships, but they also have the option to elect to be taxed as an S corporation, which may affect how employment and self-employment taxes apply, depending on the business’s circumstances. 

LLCs can be managed either by members or by hired managers. In a member-managed LLC, the owners directly handle day-to-day operations and decisions. 

In a manager-managed LLC, ownership is separated from operations. Members hire managers to run the business. Those managers can be a designated LLC member, someone external, or a combination of both.

Rules for forming and running an LLC vary by state. Requirements for naming, fees, registered agents, and annual filings all differ depending on where you register. If an LLC does business outside its state of formation, other states may designate it a “foreign LLC,” which can trigger additional registration requirements.

A single-member LLC (one owner) is legally distinct from its owner in terms of liability. The IRS, however, treats single-member LLCs as “disregarded entities” unless the owner files Form 8832 and elects corporate taxation. Multimember LLCs (multiple owners) are taxed as partnerships by default.

LLC vs. other business types

How to start an LLC in 7 steps

1. Choose a name for your LLC
2. Choose a registered agent
3. File your articles of organization
4. Obtain your EIN and check tax requirements
5. Draw up an LLC operating agreement
6. Open a bank account for your LLC
7. Obtain necessary licenses or permits

Most business owners register their LLC in the state where the business primarily operates. If your business operates in multiple states, you may need to register as a foreign LLC in each of those states, which means additional filings and fees.

You can complete the formation process independently, or work with a filing service or attorney. 

While specific requirements vary by state, here’s how to set up your LLC in seven steps.

1. Choose a name for your LLC

Before settling on a name, check your state’s business database to confirm it’s available. Each state has its own naming rules. Nearly all states require you to include “LLC” or “Limited Liability Company” in your LLC business name. Most states also prohibit duplicate LLC names and may restrict certain words or phrases.

“One lesson any entrepreneur creating a brand will quickly learn is that it’s not easy to get a name trademarked. You have to be very judicious about the brand name you pick, because if it’s already trademarked, eventually it’ll come back to bite you in the way of a lawsuit or a cease and desist,” says Sandro Roco, founder of sparkling water brand Sanzo, on an episode of the Shopify Masters podcast.

2. Choose a registered agent

A registered agent is someone who receives legal documents on behalf of your business. You can act as your own registered agent, designate an LLC member, or use a third-party registered agent service.

Registered agents must have a physical street address in the state of formation, not a P.O. box. If you’re your own registered agent, most states also require you to be physically present at that address during normal business hours. 

3. File your articles of organization

Submit your articles of organization to your state’s Secretary of State office. Most states offer online filing and provide standard forms. You can handle this step yourself or work with an attorney or filing service.

State filing fees vary.Most states fall in the $50 to $200 range. 

4. Obtain your EIN and check tax requirements

Once your LLC is registered with the state, get your employer identification number (EIN) from the IRS. You can apply for free online through the IRS website and receive your EIN immediately, or apply by mail using Form SS-4. Check your state’s specific tax requirements as well, as states may have additional rules for LLCs.

Not every LLC is required to get an EIN. A single-member LLC that’s a disregarded entity and has no employees can use the owner’s Social Security number instead. However, there are benefits to obtaining an EIN besides taxes, and if you plan to apply for a business credit card or business loan, it’ll likely be required. Multimember LLCs must have an EIN regardless of how the LLC is taxed.

5. Draw up an LLC operating agreement

An LLC operating agreement is an internal document that outlines how your business is managed. It doesn’t need to be filed with the state in most cases; you can keep it with your business records.

The agreement typically covers day-to-day operations, member duties and rights, asset distribution if a member leaves, and dissolution procedures. For multimember LLCs, a written agreement helps prevent disputes if members exit or the business closes.

Single-member LLCs benefit from having one too. An operating agreement helps reinforce the legal separation between you and your business, which supports your liability protection. Without one, your LLC may fall back on default state rules that don’t reflect how you actually want the business to be run.

6. Open a business bank account for your LLC

Open a business bank account in your LLC’s name. You’ll need your EIN or Social Security number, LLC formation documents, and operating agreement to set one up.

Shopify Balance is a business money account built for Shopify store owners. It lets you manage your money, pay bills, and track cash flow all from your Shopify admin.

“Shopify Balance made it much easier to keep our accounts organized and find transactions in a heartbeat. When our accountant gives me a list of transactions that need to be categorized, it no longer takes me hours to complete the task,” says Joshua Thompson, cofounder of hair care brand FreeTheRoots.

A business credit card is one way to separate business and personal expenses and may contribute to a business credit history.

7. Obtain necessary licenses or permits

Depending on your industry, you may need business licenses, professional permits, industry-specific certifications, or state and federal registrations. Requirements vary depending on your location and business type.

After formation, most LLCs also have ongoing compliance obligations. Many states require annual or biennial report filings to keep your LLC in good standing. Missing these deadlines can result in late fees or administrative dissolution.

Benefits and challenges of starting an LLC

Limited liability and flexible tax treatment are two reasons business owners choose LLCs. Whether these features are beneficial depends on the business’s circumstances.

Benefits of an LLC

An LLC’s benefits include liability protection, formal registration, and tax flexibility, as well as more direct legal and financial effects. 

Protection from personal liability

Because an LLC is a legal entity separate from its members, state law generally treats members’ personal assets as separate from business liabilities, subject to exceptions. If your LLC faces bankruptcy or lawsuits, personal assets are generally not available to satisfy business obligations, unless exceptions apply.

According to data from the Bureau of Labor Statistics, about one in five US businesses fail within their first year of operation. Limited liability does not prevent business failure, but it can limit owners’ personal exposure to certain business liabilities.

Simple formation process

You can complete LLC registration online in most states by filing forms and paying a state fee. Online filings are usually approved within two weeks, though processing times vary by state.

Professional credibility

An LLC’s registered status is publicly verifiable through your state’s business database. Registration shows customers, vendors, and potential employees that the business has been formally organized under state law.

Ownership structure and financing

Unlike sole proprietorships, LLCs can take on investors as members and issue ownership interests, giving it a formal business structure for raising capital. Small Business Administration (SBA) loan eligibility also requires that a business be officially registered and operating legally.

Tax treatment

By default, LLC income is taxed on the owners’ returns rather than at both the entity and owner levels.

LLCs can also choose to be taxed as an S corp, which may change how compensation and self-employment taxes are treated, depending on the LLC’s election and facts.

LLC owners may also be eligible for the qualified business income (QBI) deduction, which lets eligible pass-through business owners deduct up to 20% of their qualified business income on personal tax returns. 

The QBI deduction was set to expire at the end of 2025, but the One Big Beautiful Bill Act, signed into law in July 2025, made the deduction permanent and raised the income thresholds at which it starts to phase out.

Challenges of an LLC

Potential drawbacks to forming and operating an LLC include the following. 

Startup costs

LLC formation filing fees range from $35 to $500, depending on your state. Montana has the lowest filing fee, at $35; Massachusetts charges the highest, at $500. Most states fall in the $50 to $200 range. Beyond the initial filing, costs can include:

• Name reservation
• Registered agent services
• Publication requirements (required in New York, Arizona, and Nebraska)
• Annual or biennial state report filing fees

Some states have no ongoing annual report fee. However, Arizona, Missouri, New Mexico, and Ohio don’t require an annual or biennial report.

Limits on liability protection

While LLC members’ personal assets are generally separate from business liabilities, this protection isn’t absolute. A judge may rule that personal assets aren’t protected if LLC members haven’t followed proper business practices. The liability shield may not extend to members who:

• Commit fraud during business operations
• Fail to pay required taxes
• Inappropriately mix personal and business finances
• Personally guarantee a business loan or debt

Maintaining separation between business and personal finances may be relevant to preserving limited liability protections. “Every entity needs its own QuickBooks file, its own business bank account. You need to be very intentional about how you move money in between them,” says Casey Wojtalewicz, cofounder of Canyon Coffee, on Shopify Masters.

Record-keeping requirements

LLCs require formation and compliance records that sole proprietorships do not. Multimember LLCs must also keep detailed records to prevent disputes if members leave or the business closes.

Complex dissolution process

Closing an LLC requires multiple legal and administrative steps. You must:

• File dissolution forms with your state
• Document member votes to close
• Notify creditors
• Settle business debts
• Alert tax agencies
• Distribute remaining assets according to your operating agreement

LLC guidance by state