A Limited Liability Company (LLC) is the most popular business structure in the United States. It combines liability protection with tax flexibility. This guide walks you through what an LLC is, how to form one, costs by state, and how it's taxed.
A Limited Liability Company is a legal business entity formed under state law. It blends the liability shield of a corporation with the tax simplicity and operational flexibility of a partnership or sole proprietorship.
The owners of an LLC are called members. An LLC can have one member or many, and members can be individuals, other LLCs, corporations, or even foreign nationals.
Once formed, the LLC is a separate legal "person": it can open bank accounts, sign contracts, own property, sue, and be sued in its own name.
Six core advantages that make the LLC the default choice for new US businesses.
Your personal assets (home, savings, vehicles)
stay separate from business debts and
lawsuits.
Profits flow directly to owners and are taxed
once on personal returns, avoiding corporate
double taxation.
Single-member, multi-member, or foreign-
owned: LLCs allow virtually any ownership
structure.
No mandatory board meetings, minutes, or
shareholder resolutions. Run your
business your way.
An LLC suffix builds trust with customers,
vendors, banks, and investors worldwide.
Members can split profits in any ratio they agree
on, not strictly by ownership percentage.
The same proven process used by millions of US business owners, from picking a state to staying compliant.
Pick the state of formation. Most owners form in their home state; non-residents often choose Wyoming, Delaware, or New Mexico.
Every LLC needs a registered agent with a physical address in the state to receive legal mail and government notices.
Internal document outlining ownership, voting rights, profit splits, and management rules. Required in some states.
Keep finances separate to maintain liability protection. Most banks require Articles, EIN, and Operating Agreement.
Search the state business database to ensure availability. Name must include 'LLC' or 'L.L.C.' and follow state naming rules.
Submit the formation document with the Secretary of State and pay the state filing fee (typically $50–$500).
Federal tax ID number used for taxes, hiring employees, and opening a US business bank account. Free to obtain.
File annual reports, pay state franchise tax (where applicable), and renew licenses to keep your LLC in good standing.
State filing and annual fees vary widely. Here are the most popular states for LLC formation.
| State | Filing Fee | Annual Fee | Highlight |
|---|---|---|---|
| Wyoming | $100 | $60 | Strong privacy, low fees |
| Delaware | $110 | $400 | Investor-friendly courts |
| New Mexico | $50 | $0 | No annual report required |
| Florida | $125 | $138.75 | No state income tax |
| Texas | $300 | $0* | Franchise tax above revenue threshold |
| California | $70 | $800 | High annual franchise tax |
| Nevada | $425 | $350 | No state income tax |
| New York | $200 | $9+ | Publication requirement adds cost |
The IRS doesn't have a separate LLC tax category. Instead, your LLC is taxed in one of four ways.
Single-Member LLC
Default IRS treatment. Profits reported on Schedule C of your personal 1040 return. Self-employment tax applies.
Multi-Member LLC
Files Form 1065 informational return. Each member receives a K-1 and reports their share on their personal return.
LLC Taxed as S-Corp
File Form 2553. Owners pay themselves a salary plus distributions, potentially saving on self-employment tax.
LLC Taxed as C-Corp
File Form 8832. Profits taxed at the corporate rate (21%). Useful for retaining earnings or attracting VC funding.
See how an LLC stacks up against the two other most common US business structures.
| Feature | LLC | Sole Proprietorship | Corporation |
|---|---|---|---|
| Liability Protection | Yes | No | Yes |
| Taxation | Pass-through (default) | Personal income | Double taxation (C-Corp) |
| Setup Complexity | Moderate | Minimal | High |
| Ongoing Compliance | Low to Moderate | None | High |
| Ownership Flexibility | Unlimited members | One owner only | Shares & shareholders |
| Raising Capital | Limited | Very limited | Best for VC/IPO |
The LLC is the most flexible US entity, which is why it works for almost every type of small business owner.
Online filings in most states are approved within 1–10 business days. Wyoming and New Mexico can take as little as 24 hours, while California or New York may take 2–4 weeks for standard processing.
Yes. There is no citizenship or residency requirement to own a US LLC. You don't need a Social Security Number. As a foreign owner, you can apply for an EIN using Form SS-4.
No. Most LLCs are formed without an attorney. State websites accept online filings directly, and formation services handle the paperwork affordably for those who want guided assistance.
A Registered Agent is a person or company with a physical address in your formation state who receives legal documents on your LLC's behalf. Every state requires one. You can act as your own agent or hire a service.
It is mandatory in California, New York, Missouri, Maine, and Delaware. Even where optional, it is strongly recommended: banks often request it, and it prevents disputes between members.
Most states require an annual or biennial report and a small fee. You must also file federal taxes, maintain a registered agent, and renew any local business licenses.
Yes. You can elect S-Corp status by filing Form 2553 or C-Corp status by filing Form 8832 with the IRS at any time, subject to certain timing rules.
Your LLC will fall out of good standing, accrue penalties, and may eventually be administratively dissolved by the state, which would cost you your liability protection.
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