Deal alert! Northwest will form your LLC for $39 (60% discount). See details.
What is an LLC?
An LLC is a Limited Liability Company: a formal business structure that protects your personal assets (like your home, car, and personal bank accounts) in the event your company is sued.
An LLC does this by keeping the business’ finances and legal responsibilities separate from the personal assets of the owner.
Most people use LLCs to operate a business, but LLCs can also be used to hold assets.
For example: An LLC can be used to own real estate, vehicles, investments, boats, aircraft, and more.
We’ll help you become an LLC expert by explaining the benefits of an LLC, how they work, and how to start an LLC.
What are the benefits of an LLC?
The main benefits of forming a Limited Liability Company include:
- Personal asset protection
- Affordable formation costs
- Low ongoing maintenance costs
- Flexibility (an LLC can operate one or multiple businesses)
Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
(We recommend Northwest. We've reviewed all the top companies in the industry. And Northwest is our #1 pick for prices, customer support, and address privacy. Check out Northwest vs LegalZoom to learn more.)
LLCs provide personal asset protection
The main reason to form an LLC is for personal asset protection.
By forming an LLC you create a “protective wall” between your business assets and your personal assets.
Your personal assets include everything that you own:
- your home,
- vehicles,
- bank accounts,
- investment properties,
- boats,
- jewelry,
- etc.
If your LLC is sued, creditors can only attack the assets of your LLC to settle the business’s debts and liabilities.
Your personal assets are safe and secure because they aren’t a part of the business.
Without forming an LLC (for example, operating as a Sole Proprietorship), your personal assets are at risk if your business is sued.
LLCs are affordable to set up
Generally speaking, LLCs are affordable to set up.
The average LLC filing fee in the US is around $132. In most states it’s between $50 and $150.
LLCs are a low maintenance business structure
Once your LLC is set up, there are only a couple of requirements to keep it active.
Registered Agent
The first requirement is to have a Registered Agent for your LLC. The Registered Agent simply gets listed on your LLC filing paperwork.
If you’ll be your LLC’s Registered Agent (or will use a friend or family member), this won’t cost anything (it’s free).
On the other hand, you can hire a Registered Agent Company. This will cost between $100 and $200 per year.
LLC Annual Report
The second requirement is to file an LLC Annual Report every year.
The Annual Report is a filing that keeps your LLC in good standing with the state.
Note: Most states have an Annual Report due every year. However, some states have a Biennial Report due every 2 years. And in a few states, there’s no Annual Report at all (see LLC Annual Fees for details).
An LLC can be used to run multiple businesses
An LLC can be used to run 1 business. Or an LLC can be used to run multiple businesses.
(Or you can form multiple LLCs if necessary. There is no limit to the number of LLCs you can own.)
For more information, please see Can you have two businesses under one LLC?
How much does it cost to start an LLC?
The cost to start an LLC varies by state. It can be as cheap as $40 to file or up to $500.
We have the fees for all 50 states here: LLC filing fees by state.
How long does it take to get an LLC?
On average, it takes about 1 week or less to get an LLC.
In some states it’s as fast as same-day. And in other states, it can take weeks.
(The approval time for your LLC will also depend on whether you file by mail, or online.)
For details on your state’s approval time, please see How Long Does it Take to Get an LLC?
What are the owners of an LLC called?
LLC owners are called “Members“.
How many owners can an LLC have?
There is no limit to the number of owners (Members) an LLC can have.
- An LLC can be owned by 1 person (called a Single-Member LLC).
- Or, an LLC can be owned by 2 or more people (called a Multi-Member LLC).
Note: An LLC can also be owned by another company, Non-US residents, Trusts, and many other types of entities.
The names of the LLC Members – and how much of the business they each own – are recorded in the LLC Operating Agreement.
What is an Operating Agreement for an LLC?
An Operating Agreement is an internal document that sets forth how the LLC will be managed both financially and operationally.
How do I form an LLC?
When forming an LLC, you can file yourself or hire a company to do it for you.
File your LLC yourself
To start an LLC, there are a number of steps to follow:
- Choose an LLC Name
- Select a Registered Agent
- File Articles of Organization and pay the state filing fee
- Create an Operating Agreement
- Get an EIN
- Apply for Business Licenses and Permits, if needed
For state-specific instructions, please use the drop down below:
Hire a company
If you’d like to hire a company to form your LLC, there are several options. We’ve reviewed all of the companies in the industry. And you can see our top picks here: Best LLC Services.
If you just want to know who’s #1, we recommend Northwest Registered Agent. They’ve been in business over 20 years and have great customer service.
Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
(We recommend Northwest. We've reviewed all the top companies in the industry. And Northwest is our #1 pick for prices, customer support, and address privacy. Check out Northwest vs LegalZoom to learn more.)
Limited Liability Company FAQs
What’s better: an LLC or a Corporation?
A lot of people ask us if they should form an LLC or form a Corporation?
Generally speaking, Corporations are much more complex and pay more in taxes. They aren’t very common for small business owners.
Some of the major differences are:
- LLCs don’t have to elect a board of directors; Corporations do.
- LLCs don’t need to hold board meetings; Corporations do.
- LLCs don’t have to keep records of all their meetings; Corporations do.
- LLCs aren’t subject to double taxation; Corporations are.
- LLCs can distribute profits however they want; Corporations can’t.
In short, LLCs are the most popular and the most flexible business structure for business owners, entrepreneurs, and real estate investors.
Note: For more information on using an LLC to hold real estate, see When Should I Form an LLC for Real Estate?
How are LLCs taxed?
By default, LLCs are taxed based on the number of Members (owners):
- LLCs with 1 Member (called Single-Member LLCs) are taxed like a Sole Proprietorship.
- LLCs with 2 or more Members (called Multi-member LLCs) are taxed like a Partnership.
That said, LLCs can file paperwork with the Internal Revenue Service (IRS) to be taxed as an S-Corporation, or to be taxed as a C-Corporation.
We recommend that most people keep their default tax classification to start. If you’d like to change your tax classification later, we recommend speaking with an accountant first.
And besides federal income tax, there are also state taxes.
Once you select how your Limited Liability Company will be treated for federal income tax purposes, the state where your LLC was formed will honor this federal tax classification. Meaning, your business entity will be taxed the same way for state and federal tax purposes.
Exception: Some states don’t tax personal income at all.
You may also need to pay local income taxes – and sales tax. These tax rates and rules are determined by your city, county, or other municipalities.
For more information, please read How are LLCs Taxed?
Will an LLC save money on corporate income taxes?
No, forming an LLC won’t prevent you from having to pay corporate income taxes. This is because LLCs don’t have corporate income taxes at all.
Said another way, the term “LLC” stands for Limited Liability Company, not Limited Liability Corporation. So LLCs don’t have corporate income taxes to pay, because LLCs aren’t Corporations.
Instead, LLCs have what’s called “pass-through taxation“.
Pass-through taxation means that the tax-paying responsibility passes through the business structure (the LLC) to the business owner(s). The business owner(s) then pay taxes on any business income generated by the LLC on their personal tax returns (Form 1040).
Note: The only exception is for LLC owners who choose to have their LLC taxed as a C-Corporation. However, this is rare.
LLCs can be managed by Members or Managers
How an LLC is managed depends on its management structure.
There are 2 types of LLC management structure:
- Member-managed LLC
- Manager-managed LLC
In a Member-managed LLC, the LLC Members (owners) run the day-to-day business and can bind the LLC in contracts and agreements.
In a Manager-managed LLC, the LLC Members pick 1 – or more – LLC Managers to run the day-to-day business and bind the LLC in contracts and agreements.
In a Manager-managed LLC, the LLC Members don’t run the business. Instead, they take on a passive, or investor role. That said, the LLC Members can remove an LLC Manager at any time if needed.
To learn more, please read Member-managed vs Manager-managed LLC.
What is the best state to start an LLC?
For most people, it’s best to form your LLC in your home state – the state where you live and work.
If you start an LLC in another state, you probably need to register the out-of-state LLC in your home state as a Foreign LLC.
This even applies when you’re running your business from home.
Forming an LLC in hyped up states like Delaware, Nevada, or Wyoming (when you don’t live or work there) can often be a bigger headache, and end up costing more money.
Real estate exception: If you’re purchasing real estate in a state other than the one where you live and work, you can form your LLC in the state where the property is located.
For more information, please see Best State to Form an LLC.
Which state is the cheapest to open an LLC?
The cheapest state to open an LLC is Montana.
That said, you should only open an LLC in Montana if you live in that state, or do business there.
While Montana may seem like a business friendly state due to their tax laws, those tax advantages only apply if you live there or do business there.
Otherwise, you’ll have to register your LLC twice:
- once as a domestic LLC in Montana,
- and again as a foreign LLC where you live/do business.
That means you will also have to pay annual fees in both states. And you may have to pay for 2 Registered Agents.
The costs add up quickly and you end up spending more money on your business instead of saving money.
References
SBA: Choose a Business Structure
IRS: Limited Liability Company (LLC)
Cornell Law School: Limited Liability Company (LLC)
The Limited Liability Company: Lessons for Corporate Law
American Bar Association: Corporations, LLCs, & Partnerships
American Bar Association Journal: Should Your Client Form an LLC
University of Richmond School of Law: Choosing the Proper Business Entity
New York Department of State: Forming a Limited Liability Company in New York
Information verified on October 6, 2026
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.