What is an LLC?

LLC Definition

An LLC (Limited Liability Company) is a business structure that combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. It is one of the most popular business structures for small businesses in the United States.

How Does an LLC Work?

An LLC creates a legal separation between the business and its owners (called "members"). This separation provides two main benefits:

LLC Benefits

LLC Owners are Called "Members"

The owners of an LLC are called "Members." An LLC can have:

• One Member: Called a Single-Member LLC
• Two or More Members: Called a Multi-Member LLC
• No Limit: An LLC can have unlimited members
• Any Type: Members can be individuals, other LLCs, corporations, or trusts

LLC Taxation

By default, LLCs have pass-through taxation:

• Single-Member LLC: Taxed like a Sole Proprietorship (Schedule C on personal tax return)
• Multi-Member LLC: Taxed like a Partnership (Form 1065, each member gets a K-1)

LLCs can also elect to be taxed as a corporation:

• S-Corporation: Can reduce self-employment taxes for active owners
• C-Corporation: May be beneficial for raising investment or certain tax situations

LLC Requirements

1. Registered Agent

All LLCs must have a Registered Agent(also called Statutory Agent or Resident Agent). This is a person or company who agrees to receive legal documents on behalf of your LLC.

You have three options for your Registered Agent:

• Yourself: Free (if you have a physical address in the state)
• Friend or Family: Free (if they live in the state and agree)
• Registered Agent Service: $100-$300/year (provides privacy and convenience)

2. LLC Annual Report

Most states require LLCs to file an Annual Report(or Biennial Statement) to keep the LLC in good standing. The average fee is $91/year.

Steps to Form an LLC

1. Choose an LLC Name - Must be unique and include "LLC" or "Limited Liability Company"
2. Select a Registered Agent - Person or company to receive legal documents
3. File Articles of Organization - Submit formation documents to your state
4. Create an Operating Agreement - Internal document outlining ownership and procedures
5. Get an EIN - Federal tax ID number from the IRS (free)
6. Apply for Business Licenses/Permits - As required for your industry and location

LLC vs Other Business Structures

Who Should Form an LLC?

An LLC is ideal for:

• Small business owners who want liability protection
• Real estate investors protecting rental properties
• Freelancers and consultants seeking credibility
• Partners who want flexible management structures
• Anyone with assets to protect from business risks

Frequently Asked Questions

How much does an LLC cost?

The average LLC filing fee is $132, but ranges from $35 (Montana) to $500 (Massachusetts). See fees for all 50 states.

How long does it take to get an LLC?

Processing times vary by state from same-day (some states with online filing) to 4-6 weeks for mail filings. See processing times by state.

Do I need an attorney to form an LLC?

No. You can form an LLC yourself by following our free step-by-step guides. However, if you have complex business structures or legal questions, consulting an attorney may be helpful.