How to start an LLC: steps, costs, and what to file

Published Saturday 28 February 2026

Table of contents

• What is an LLC?
• Why LLC is such a popular structure
• How much does it cost to start an LLC?
• How to start an LLC: nine steps
• Maintaining your LLC: ongoing requirements
• Tips for starting an LLC
• Manage your LLC with confidence
• FAQs on starting an LLC

Key takeaways

• Choose your home state based on where you'll conduct most of your business, then file Articles of Organization through your state's Secretary of State website along with the required filing fee that typically ranges from $50 to $500.
• Obtain an Employer Identification Number (EIN) for free directly from the IRS website immediately after filing your Articles of Organization, as you'll need this nine-digit number to open a business bank account and file taxes.
• Draft an operating agreement that outlines how your LLC will be run, including profit distribution, member roles, and decision-making processes, even though it's not legally required in most states for single-member LLCs.
• Maintain your LLC's good standing by filing required annual reports, paying franchise taxes when applicable, and keeping organized financial records to avoid penalties and protect your liability protection.

What is an LLC?

A limited liability company (LLC) is a business structure that separates your personal assets from your business. This means your personal savings, home, and other property are generally protected if your business faces debts or lawsuits.

Learn more in the guide What is an LLC.

Why LLC is such a popular structure

LLCs are one of the most popular business structures in the US; in one year alone, a Government Accountability Office (GAO) report found that over 1,068,989 LLCs were formed nationwide. Here's why so many business owners choose this structure:

• liability protection: your personal assets stay separate from your business. If your LLC faces debts or lawsuits, your personal savings and property are generally protected
• tax flexibility: you can choose how your LLC is taxed. Stick with pass-through taxation like a sole proprietorship, or elect S corporation status to potentially lower your tax bill. The Internal Revenue Service (IRS) clarifies that by filing Form 2553 for S corp status, an LLC is automatically considered to have made an electing classification as a corporation, too
• ownership options: an LLC can be owned by one person, multiple people, other LLCs, or a mix of individuals and businesses. No other structure offers this level of flexibility

How much does it cost to start an LLC?

LLC formation costs vary by state but typically range from $50 to $500 for the basic filing. Here's what to budget for:

• state filing fees: $50 to $500 depending on your state. Some states like Kentucky charge as little as $40, while Massachusetts charges $500
• registered agent fees: free if you serve as your own agent, or $100 to $300 per year for a professional service
• operating agreement: free if you draft it yourself using a template, or $500 to $2,000 if you hire an attorney
• annual fees: most states charge $50 to $300 per year in annual report fees or franchise taxes to maintain your LLC

Optional costs include:

• LLC formation services: $100 to $500 plus state fees if you use a service to handle the paperwork
• business licenses and permits: varies by industry and location
• legal consultation: $150 to $400 per hour if you need attorney advice

Check your state's Secretary of State website for exact filing fees. Track these startup expenses and ongoing costs from day one with accounting software.

How to start an LLC: nine steps

Follow these nine steps to legally form your LLC and start operating your business. Many owners handle this process themselves, though you can also work with an accountant or formation service if you prefer.

1. Choose your LLC's home state. Select the state where you plan to do the most business. This is typically where you live or where your primary operations will be located.
2. Pick a name. Check availability on your home state's Secretary of State website. Most states have an LLC database where you can search for existing business names.
3. Check for trademarks. Search the Trademark Electronic Search System on the US Patent and Trademark Office website. Run a basic word search for your business name and a few variations to make sure no one else has trademarked it.
4. Designate a registered agent. A registered agent is a person or service that receives legal documents on your LLC's behalf. Every LLC is required to have one. Your registered agent can be yourself or another LLC owner, an employee of your business, or a professional registered agent service.
5. Register the LLC and file the Articles of Organization. Articles of Organization is the official document that creates your LLC. File this form through your state's Secretary of State or Department of State website. While states will screen the form for required information, a U.S. Government Accountability Office report noted that officials typically do not perform checks like verifying the identities of company officials. The form typically asks for your LLC's name and address, the type of business you're starting, names and addresses of owners (called "members"), and your registered agent's information. Some states have additional requirements, like publishing your articles in a local newspaper. Check your state's specific rules before filing.
6. Get an Employer Identification Number (EIN). An Employer Identification Number (EIN) is a nine-digit number the Internal Revenue Service (IRS) uses to identify your business for tax purposes. You'll need one to open a business bank account, hire employees, and file taxes. Apply for free on the IRS website. The online application takes about 10 minutes, and you'll receive your EIN immediately. However, be aware that the IRS allows you to apply only for 1 EIN per day.
7. Draft an operating agreement. An operating agreement is a document that outlines how your LLC will be run. While not legally required in most states for single-member LLCs, it's essential for multi-member LLCs and recommended for all. Your operating agreement typically covers how profits and losses are divided among owners, each owner's roles and responsibilities, how decisions are made, and what happens if an owner wants to leave. Learn more in the guide on operating agreements for LLCs.
8. Open a business bank account. A business bank account keeps your personal and business finances separate. This separation is important for maintaining your LLC's liability protection and makes bookkeeping and tax preparation much easier. To open a business bank account, you'll typically need your EIN, Articles of Organization, and operating agreement (if you have one).
9. Register in other states (if necessary). If your LLC does business in states other than your home state, you may need to register as a "foreign LLC" in those states. This typically applies if you have a physical location, employees, or significant sales in another state. Foreign registration involves filing paperwork and paying fees in each additional state. Check each state's requirements, as rules vary.

Maintaining your LLC: ongoing requirements

Forming your LLC is just the beginning. Most states require ongoing filings and fees to keep your LLC in good standing.

• Annual reports: Most states require LLCs to file an annual or biennial report. This updates the state on your business address, registered agent, and member information. Fees typically range from $25 to $300.
• Franchise taxes: Some states charge an annual franchise tax or LLC tax regardless of whether your business made a profit. California, for example, charges an $800 minimum franchise tax.
• Registered agent: Keep your registered agent information current. If you change agents or your agent's address changes, file an update with the state.
• Record-keeping: Maintain organized records of financial transactions and bank statements, contracts and agreements, meeting minutes (if required by your operating agreement), and tax filings and receipts.
• Tax obligations: LLCs must file federal and state tax returns. Depending on your LLC's tax election, you may need to file quarterly estimated taxes.

Missing deadlines or filings can result in penalties, late fees, or losing your LLC's good standing. Accounting software like Xero helps you track deadlines, organize records, and stay on top of your financial obligations.

Tips for starting an LLC

Forming your LLC is just the first step. Building a successful business requires planning, financial preparation, and a strategy to attract customers. Here's how to set yourself up for success.

Create a business plan

A business plan documents your goals, strategy, and financial projections. For LLCs with multiple owners, it establishes expectations and keeps everyone aligned.

A business plan is also essential if you need funding. Lenders and investors want to see a thorough plan before providing capital.

Download a free business plan template.

Work up some financials

Your business plan needs solid financial projections. Calculate these key numbers:

• startup costs: one-time expenses to launch your business
• operating costs: monthly expenses to keep your business running
• break-even point: when revenue will cover your expenses
• funding sources: how you'll cover costs until you reach break-even

Pay special attention to cash flow. Map out when money comes in versus when it goes out, and plan how you'll cover expenses during slow periods.

Create at least two financial scenarios: one where things go as planned, and one that accounts for setbacks. Having a backup plan helps you respond quickly if circumstances change.

Write a marketing plan

A marketing plan outlines how you'll attract and retain customers. Before spending money on advertising, do market research to understand your target audience and what they're looking for.

Your marketing plan should cover:

• who your ideal customers are
• how you'll reach them (social media, advertising, referrals)
• what makes your business different from competitors
• your marketing budget and expected results

Get advice

Getting expert advice can save you time and help you avoid costly mistakes. Consider consulting:

• an accountant: for tax planning, financial projections, and bookkeeping setup
• a lawyer: for complex operating agreements or liability concerns
• industry peers or mentors: for practical insights on running your type of business

You can find accountants and bookkeepers to help in Xero's advisor directory.

Manage your LLC with confidence

Starting an LLC is an exciting first step. Managing it successfully means staying on top of your finances, meeting compliance requirements, and tracking your business performance.

Manage your LLC from day one with accounting software that tracks expenses, sends invoices, reconciles bank transactions, and generates reports that show how your business is doing. When tax time comes, you'll have organized records ready for your accountant.

Try Xero free for 30 days and see how easy managing your LLC can be.

FAQs on starting an LLC

Have more questions about forming your LLC? Here are answers to common questions.

How long does it take to form an LLC?

Most states process LLC filings within one to two weeks. Some states offer expedited processing for an additional fee, which can reduce the timeline to one to three business days.

Can I form an LLC myself or do I need a lawyer?

You can form an LLC yourself in most straightforward situations. The process involves filling out forms and paying fees. Consider hiring a lawyer if you have multiple owners with complex arrangements, significant assets to protect, or questions about liability.

What's the difference between an LLC and a sole proprietorship?

A sole proprietorship has no separation between you and your business, meaning your personal assets are at risk if your business is sued or can't pay its debts. An LLC creates a separate legal entity that protects your personal assets. LLCs also offer more tax flexibility and can appear more credible to customers and lenders.

Do I need to form an LLC in the state where I live?

You typically form your LLC in the state where you'll conduct most of your business, which is usually where you live. If you do significant business in other states, you may need to register as a foreign LLC in those states as well.

How is an LLC taxed?

By default, single-member LLCs are taxed as sole proprietorships (which the IRS considers an entity disregarded as separate from its owner) and multi-member LLCs are taxed as partnerships. This means profits pass through to the owners' personal tax returns. LLCs can also elect to be taxed as S corporations or C corporations, which may offer tax advantages depending on your situation. Consult a tax professional to determine the best option for your business.