How to Start an LLC in 6 Easy Steps for 2025: An In-Depth Guide

by Imed Bouchrika, Phd

Co-Founder and Chief Data Scientist

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A limited liability company (LLC) is a hybrid business structure that integrates the limited-liability quality of a corporation and the feature of a partnership that allows LLC profits to be taxed as the owners’ personal income (Fernando, 2022). In the United States, about 21.6 million businesses are LLCs (Fitzpatrick, Lentz, & Bubba, 2021). The prevalence of the company structure may be due to the separation between LLCs’ assets and liabilities and those of the owners’ as well as the ability to select the preferred tax treatment of the owners.

Since building a business has many requirements—including being financially literate, training for leadership, and gaining experience with operations management—the Research.com team wrote this guide on how to start an LLC in just a few simple steps to help entrepreneurs aspiring to successfully establish their own. Additionally, this article discusses the advantages, disadvantages, and costs of starting an LLC.

How to Start an LLC Table of Contents

1. Register a Business Name for Your LLC
2. Select a Registered Agent
3. Submit Your Business Requirements to the Government
4. Create an LLC Operating Agreement
5. Register for Necessary Licenses
6. Get Your Employer Identification Number

The COVID-19 pandemic sparked the spirit of entrepreneurship in many individuals in the U.S. In 2020, 4.35 million businesses in the country were registered—a 24.29% increase from the 3.5 million businesses that applied in 2019. In 2021, another 5.38 million entities were established, which is almost a 54% growth from 2019. Although 2022 saw a drop in business applications, 5.04 million new entities were still registered (U.S. Census Bureau, 2022).

Business success may involve important elements that are controllable by entrepreneurs, but some experts recommend strategically including the power of luck in the mix. Taking notes and inspiration from recently popular businesses may help you improve in one way or another. However, recognizing the role of chance situations and encounters in the growth of your business may also be beneficial to you, aside from, for instance, taking traditional or online business degree programs, developing grit, and modeling areas of your operations and long-term strategy after veterans in the game.

Additionally, learning about different company structures, their benefits, and their downsides may also help start your journey toward entrepreneurial success and answer crucial questions that you may have, such as “Is owning an LLC worth it?" Below, our research team has outlined six easy steps that you can follow to establish your own LLC-structured business.

How to Start an LLC

1. Register a Business Name for Your LLC

The first step on our list on how to start an LLC is deciding on and registering your business name. The owners, called members, who may be an individual, corporation, partnership, another LLC, or any legal entity, must come up with a unique business name that encapsulates their business type and purpose, among other identifying elements. Then, the individuals authorized to select new business names register them at the appropriate government agencies.

To choose and to check LLC name availability understandably take time and effort, considering that naming mistakes may result in unwanted financial expenses brought about by rebranding and legal challenges. Spending a significant amount of resources to get your branding right the first time may still cost you less and may help make your company more profitable in the long run. Relevant branding and effective marketing strategies raise awareness, establish positive recognition, and build consumer trust and credibility.

Fortunately, business name generator applications may support users in producing distinct, relevant, and available company names. Afterward, you may register your business name for trademark and service-mark rights as business-name registration does not automatically provide you with these rights. Trademarks and service marks are words, phrases, symbols, designs, or a mixture of these elements identifying and differentiating the different business entities that produce and distribute the goods and services (U.S. Patent and Trademark Office, 2020).

Due to the business boom during the pandemic, the number of registered trademarks in the U.S. reached 2.8 million in 2021 (World Intellectual Property Organization, 2022) from 836,496 trademarks in 2020 and 303,073 trademarks in 2003 (Duffin, 2022). With the surge in registered company names, you may take inspiration from small business name ideas provided by experts.

2. Select a Registered Agent

LLCs are required by law to hire a registered agent, which is an individual or organization that receives service of process and government documents on behalf of LLCs. Registered agents, then, forward these documents to the owners of the LLCs.

Your selected agents must meet the following requirements to qualify for the job (Registered Agents, Inc., n.d.):

• Must have a registered physical office address where service of process and other documents may be delivered and received in person
• Must be available to receive these documents during regular business hours
• Must forward service of process to authorized individuals in the LLC that is involved in the lawsuit

3. Submit Your Business Requirements to the Government

Individuals that are in charge of registering LLCs are required to submit Articles of Organization and pay a filing fee to their Department of State in compliance with the Limited Liability Company Law. Members of the LLC may organize and file the Articles of Organization themselves, but they may also authorize any person or entity to perform the task for them.

When filing, you must ensure that the words “Limited Liability Company" or its abbreviation—"LLC" or “L.L.C."—is included in the name of the business. Refer to the Limited Liability Company Law for the list of restricted words and words that need approval from other government agencies. You may also check your state government’s website to confirm if online filing is available.

4. Create an LLC Operating Agreement

LLC operating agreements detail the financial and functional framework of the business. They include company regulations and policies that manage internal operations as envisioned and necessitated by the LLC members. While some states do not require them, they are crucial as they enable members to manage their own operations. The signatures of members bind them to the terms and conditions of their LLC operating agreement (Nwatu, 2016).

LLC operating agreements have three important objectives:

• To indicate the limited liability status of LLCs, protecting members from personal liability
• To prevent miscommunication in terms of agreements among members
• To become autonomous and avoid being governed by the general default rules of the state

The following key pieces of information, among others, must be included in an LLC operating agreement (Nwatu, 2016):

• Percentage of members’ ownership
• Voting rights and responsibilities
• Powers and duties of members and managers
• Distribution of profits and losses
• Holding meetings

5. Register for Necessary Licenses

Certain licenses are required by the government depending on the business type of your LLC. While some industries, including aviation, agriculture, and transportation, need to register for federal licenses, all businesses need a license or permit registered in their county, city, or state to be able to legally operate. You may contact your local government office to confirm the type of licenses that your business may need.

The following are additional licenses that particular businesses must acquire (DeLoe, 2022):

• Professional licenses, such as those for attorneys, accountants, and physicians
• Industry-based licenses
• Sales tax licenses
• Licenses or permits for businesses offering emergency services
• Permits for environmental protection
• Licenses to operate under another name

6. Get Your Employer Identification Number

The last step on our list on how to start an LLC is registering for an employer identification number (EIN). LLCs must secure their own EIN for tax administration. Applicants are provided with the option to register online and will receive their EIN after validation. To apply, you must first verify if your business meets the following qualifications for an EIN:

• Must be located in the U.S. or in U.S. territories
• Must be registered by an individual with a valid taxpayer identification number
• Must be limited to one EIN per responsible party—the individual to own or control the LLC—per day

Many global companies are LLCs, including Google, Nike, and PepsiCo, and may have benefitted from the features of their business structure to be able to succeed and achieve billions of dollars in revenue today. In 2022, Google’s revenue reached $279.8 billion (Bianchi, 2023) and Nike’s revenue was $46.71 billion (Tighe, 2022). Meanwhile, PepsiCo’s revenue in 2021 was $79.47 billion (Ridder, 2022).

Are there common mistakes to avoid when forming an LLC?

When forming an LLC, several pitfalls may affect both compliance and long-term success. Missteps such as drafting an incomplete or overly generic operating agreement, neglecting to verify specific state regulations, or overlooking future licensing needs are common errors. Additionally, failing to secure a dedicated registered agent with reliable processes or underestimating tax compliance requirements can expose members to avoidable financial and legal risks. Entrepreneurs must address these challenges with thorough documentation and proactive planning. For professionals seeking further educational support on managing business complexities, consider resources from the most affordable online universities in USA.

How can I optimize my LLC’s operations for long-term growth?

To sustain growth beyond formation, conduct regular performance reviews of internal processes and update policies according to evolving regulatory and market demands. Implement robust recordkeeping and performance metrics to streamline financial management and operational compliance. Establish a proactive risk management strategy that includes periodic revisions of the operating agreement and internal controls to prevent potential legal or financial setbacks. Additionally, consider continuous professional development through specialized training and courses, such as those offered by open enrollment online colleges, to enhance leadership skills and compliance insights.

The Advantages and Disadvantages of Forming an LLC

Considering that the LLC company structure is common in the U.S., you may wonder, “What are the benefits of an LLC?" As the owner of an LLC, you may enjoy the following advantages once your business is registered:

• Minimal personal liability. LLCs are legal entities of their own, ensuring that members are protected from personal liability for the assets, debts, and functions of the company (CFI, 2022). For instance, if your LLC gets sued, the plaintiff may go after the assets of your business but not your personal assets.
• Flexibility in taxation. LLCs may decide based on their preference among the various tax types: that of sole proprietorships, partnerships, S corporations, and C corporations (CFI Team, 2022). If you opt for the tax treatment of sole proprietorships, partnerships, or S corporations, your business profits will be taxed directly under individual income rather than also being taxed under corporate income, preventing your profits from being taxed twice.

However, individuals that are new to the business may also ask, “What is the downside of an LLC?" Among its disadvantages include the possible dissolution due to the death or bankruptcy of a member and the payment of self-employment taxes and annual fees for LLC benefits.

Business success mainly relies on the efficiency of the LLC’s management, systems, and employees, if any. In the study titled “Target organizational structure and human potential" published in SHS Web of Conferences in 2021, Santalova et al. evaluated business success in terms of the effectiveness of human resources and management structure.

Santalova et al. recommended that company leaders must “implement a comprehensive program [that must] include the following areas: changing the management structure, where job responsibilities are clearly reallocated; reviewing job descriptions in order to regulate employee responsibilities, support the most effective technology; and building organizational commitment of staff. The organizational structure of the studied trading firms should be made problem-oriented…The proposed problem-oriented management structure…provides a high level of specialization of employees, performing a specific function; it is combined with the structure of the management system, is easy to form and operate, and is adaptive to changes. We suggest evaluating the effectiveness of human resource management when changing the organizational structure of management by the level of management decisions of organizations."

As you establish your own LLC, analyze and consider implementing applicable elements of the above-mentioned problem-oriented management structure. Thoroughly understanding business principles, tools, and evidence-based strategies may help you long term as the survival rate of businesses decreases over time. According to Knaup and Piazza (2006), only 44% are still up and running after four years in operation and 31% remain after seven years.

More positively, 2022 data from the U.S. Bureau of Labor and Statistics (BLS) revealed that U.S. establishments founded from 1994 to 2019 have had survival rates between 55.5% and 63.6% after four years in operation. After seven years in business, between 42.3% and 47.2% of U.S. establishments founded from 1994 to 2016 remain (US BLS, 2022). The highest failure rates are witnessed in the first and second years in business, and the number of surviving companies continues to decline slowly after the fourth year.

How much does it cost to start an LLC?

The financial expenses that come with establishing an LLC may vary depending on the state where you plan to operate your business in. Before LLC registration, you must first register your legal name, or fictitious name if your state only allows business name application after you attain your LLC status, and pay for the name registration fee, which may cost about $50 (Patel, 2022).

Additionally, filing your Articles of Organization may cost you about $100, while you may be charged between $50 and $500 for hiring a registered agent, who may also be required to pay a registration fee of around $25. Annual reports to keep your active status must also be submitted with a fee of about $140 (Patel, 2022).

Become a Law-Abiding Business Owner

Aside from the effectiveness of your management, the longevity of your business also depends on meeting government requirements. Ensure that your LLC keeps its active status by submitting the necessary yearly reports to the federal government, your state government, and your local government. Different states may enforce different regulations for businesses, so contact your state and local government agencies to stay updated.

Key Insights

• Hybrid Business Structure: LLCs combine the limited liability protection of a corporation with the tax efficiencies and operational flexibility of a partnership.
• Popularity: In the U.S., 21.6 million businesses are LLCs, highlighting their widespread adoption due to their attractive benefits.
• Pandemic Entrepreneurship Boom: The COVID-19 pandemic significantly increased new business registrations, with record numbers in 2020 and 2021.
• Steps to Form an LLC: Key steps include registering a business name, selecting a registered agent, submitting necessary documents, creating an operating agreement, obtaining required licenses, and securing an EIN.
• Advantages: LLCs offer minimal personal liability and flexible taxation options.
• Disadvantages: Potential downsides include dissolution risks due to member changes and self-employment taxes.
• Success Factors: Effective management and human resources practices are critical for business success.
• Cost Considerations: Initial costs for forming an LLC vary by state, including fees for name registration, Articles of Organization, registered agent services, and annual reports.

How Can Formal Education Enhance Your LLC's Success?

Formal education provides business owners with analytical skills, strategic decision-making capabilities, and a comprehensive understanding of regulatory, financial, and operational complexities. Higher education can offer insights into management best practices and risk assessment, which are essential when navigating the evolving legal and market environment of an LLC. For instance, gaining foundational knowledge through a bachelor's degree or associate's degree can sharpen critical reasoning and foster innovative problem-solving techniques, ultimately contributing to more effective leadership and sustainable business growth.

What Are the Most Effective Funding Strategies for an LLC?

When planning the launch and sustainable growth of an LLC, exploring diverse funding avenues is essential. Alternative financing options include bootstrapping, small business loans, angel investments, crowdfunding, and lines of credit. Evaluating these strategies based on current cash flow, market conditions, and risk tolerance can help determine the optimal approach for your business needs. For instance, bootstrapping minimizes debt while securing third-party investments may provide additional capital during expansion phases. Practical financial planning and key performance metrics are critical for assessing funding effectiveness and ensuring long-term operational stability. For further financial insights and academic guidance on business and finance, consider pursuing a solid educational foundation through the best bachelor degrees.

How Can Digital Tools and Mentorship Accelerate Your LLC’s Growth?

Leveraging technology and expert guidance can streamline operations and enhance strategic decision-making for LLC owners. Integrating digital management tools improves workflow efficiency and real-time performance monitoring, while dedicated mentorship programs offer industry-specific insights that help navigate market challenges and optimize resource allocation. Combining these approaches can reinforce leadership capabilities and operational resilience, enabling a proactive response to evolving business environments. Additionally, exploring educational programs from cheap online colleges that accept FAFSA can further refine critical technical and managerial skills.

What Are the Critical Risk Management Considerations for Your LLC?

To maintain stability and protect assets, assess internal and external risks by staying current with regulatory changes and market dynamics. Regularly review and update documentation, internal controls, and compliance processes to address industry-specific challenges. Advanced courses and expert-driven strategies can fortify your risk management framework by offering insights into emerging legal trends and financial forecasting. Leverage specialized educational resources, such as short doctorate programs, to gain deeper expertise in strategic risk mitigation and legal resilience without compromising operational efficiency.

How Can Strategic Tax Planning Benefit Your LLC?

Effective tax planning is essential for optimizing cash flow and ensuring long-term financial sustainability. By systematically analyzing expenses, revenue streams, and eligible deductions, LLC owners can reduce tax liabilities and enhance overall profitability. This approach also aids in making informed investment decisions while leveraging available credits and incentives. Advanced educational pathways, such as pursuing a shortest doctorate degree in tax-related fields, can further refine strategic planning and offer deeper insights into evolving tax regulations.

FAQ

1. What is an LLC? An LLC, or Limited Liability Company, is a hybrid business structure that offers the limited liability of a corporation and the tax benefits of a partnership. This means that owners, known as members, are protected from personal liability for the company's debts and liabilities.
2. How do I choose a name for my LLC? Selecting a unique business name that reflects your business type and purpose is essential. You can use business name generator applications to help create a distinct name. Ensure the name complies with state regulations and register it for trademark and service-mark rights.
3. What is a registered agent and why do I need one? A registered agent is an individual or organization that receives legal documents and government notices on behalf of your LLC. This agent must have a physical office address and be available during business hours. Having a registered agent is a legal requirement for LLCs.
4. What documents are required to form an LLC? The primary document needed is the Articles of Organization, which you must file with your state's Department of State. Additionally, you need an LLC operating agreement, although not all states mandate it. Other requirements include various business licenses and an EIN.
5. What is an LLC operating agreement and why is it important? An LLC operating agreement outlines the financial and functional framework of the business. It specifies the rights and responsibilities of members, voting processes, profit distribution, and management structure. This agreement helps prevent disputes and ensures smooth operations.
6. What licenses does my LLC need? The required licenses depend on your business type and location. Federal licenses may be needed for specific industries, while all businesses must obtain state and local licenses or permits. Check with local government offices to determine the necessary licenses for your LLC.
7. How do I obtain an Employer Identification Number (EIN) for my LLC? An EIN is required for tax administration purposes. You can apply for an EIN online through the IRS website, and you'll receive it immediately upon validation. Ensure your business meets the EIN eligibility requirements before applying.
8. What are the main advantages of forming an LLC? The primary benefits of an LLC include limited personal liability for members and flexibility in taxation. LLCs can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation, allowing owners to avoid double taxation.
9. Are there any disadvantages to forming an LLC? Yes, disadvantages include potential dissolution due to the death or bankruptcy of a member and the need to pay self-employment taxes. Additionally, there are annual fees and administrative requirements to maintain the LLC's active status.
10. How much does it cost to start an LLC? The cost varies by state but generally includes fees for name registration (around $50), Articles of Organization (about $100), and registered agent services ($50 to $500). Annual report fees are approximately $140. Ensure you budget for these expenses when planning to form an LLC.

References

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• CFI Team. (2022, October 27). Limited Liability Company (LLC). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/management/limited-liability-company-llc
• DeLoe, R. L. (2022, December 1). Is a business license needed to form an LLC? LegalZoom. https://www.legalzoom.com/articles/is-a-business-license-needed-to-form-an-llc
• Duffin, E. (2022, August 11). Number of trademark registrations by U.S. companies from 2003 to 2020. Statista. https://www.statista.com/statistics/256791/number-of-trademark-registrations-by-us-companies
• US Bureau of Labor and Statistics. (2022). Table 7. Survival of private sector establishments by opening year. https://www.bls.gov/bdm/us_age_naics_00_table7.txt
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• Patel, R. B. (2022, November 30). The cost of starting an LLC in Florida. LegalZoom. https://www.legalzoom.com/articles/the-cost-of-starting-an-llc-in-florida
• Registered Agents, Inc. Florida Registered Agent. https://www.registeredagentsinc.com/florida
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• Tighe, D. (2022, August 15). Nike’s revenue worldwide from the fiscal years of 2005 to 2022 (in million U.S. dollars). Statista. https://www.statista.com/statistics/241683/nikes-sales-worldwide-since-2004
• Ridder, M. (2022, October 10). PepsiCo’s net revenue worldwide from 2007 to 2021 (in billion U.S. dollars). Statista. https://www.statista.com/statistics/233378/net-revenue-of-pepsico-worldwide
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