How to Start an LLC in 2026 — Step-by-Step Guide

Step 1: Choose your state

You can form an LLC in any state, even if you don't live or do business there. However, for most small businesses, forming in your home state is simplest and cheapest. Here's why:

• Home state — File once, comply with one set of rules. This is the right choice for 90% of small businesses.
• Delaware — Popular for businesses planning to raise venture capital because of its well-established business court system (Court of Chancery). Annual franchise tax is $300. If you don't operate in Delaware, you'll also need to register as a "foreign LLC" in your home state — adding a second set of fees and filings.
• Wyoming — No state income tax, low annual fees ($60), strong asset protection laws. Good for online businesses with no physical presence in a tax state.
• New Mexico — No annual report requirement and no annual fee after formation. Privacy-friendly (no public disclosure of member names).

Bottom line: unless you have a specific legal or tax reason to form elsewhere, choose your home state.

Step 2: Name and register

Your LLC name must be unique within your state and typically must include "LLC" or "Limited Liability Company." Steps:

1. Check name availability — Search your state's Secretary of State business database. Also check the USPTO trademark database to avoid conflicts.
2. File Articles of Organization — This is the document that legally creates your LLC. Filing fees range from $40 (Kentucky) to $500 (Massachusetts). Most states offer online filing.
3. Get an EIN — Apply for a free Employer Identification Number from the IRS at irs.gov. You need this for business bank accounts, taxes, and hiring. It takes about 5 minutes online.
4. Appoint a Registered Agent — Required in all states. This is a person or service that receives legal documents on behalf of your LLC. You can be your own registered agent in most states, or use a commercial service ($50–$300/year).

Step 3: Set up operations

After formation, handle these essentials:

• Operating Agreement — Even if your state doesn't require one, write an operating agreement. It defines ownership percentages, profit distribution, voting rights, and what happens if a member leaves. Without one, state default rules apply — and those may not match your intentions.
• Business bank account — Open a separate bank account in the LLC's name. Mixing personal and business finances can "pierce the corporate veil," eliminating your liability protection. See our credit card guide for information on business credit cards.
• Accounting — Track all income and expenses from day one. Single-member LLCs report on Schedule C of your personal tax return by default. Multi-member LLCs file Form 1065 (partnership return).
• Licenses and permits — Requirements vary by industry and location. Check with your city, county, and state for any required business licenses.

Step 4: Understand your tax obligations

LLC taxation is flexible, which is both an advantage and a source of confusion. Here's how it works:

• Default tax treatment — Single-member LLCs are taxed as sole proprietorships (Schedule C). Multi-member LLCs are taxed as partnerships (Form 1065). The LLC itself doesn't pay income tax — profits "pass through" to members' personal returns.
• Self-employment tax — LLC members pay self-employment tax (15.3%) on their share of profits. This covers Social Security (12.4%) and Medicare (2.9%). The Social Security portion has an annual wage-base cap that the SSA adjusts each year (check ssa.gov for the current figure), but the Medicare portion applies to all income with no cap.
• S-Corp election — Once profits exceed roughly $40,000–$60,000/year, electing S-Corp tax treatment (Form 2553) can save significant self-employment tax. You pay yourself a "reasonable salary" (subject to payroll tax) and take remaining profits as distributions (not subject to SE tax). Consult a CPA to run the numbers.
• Quarterly estimated taxes — As an LLC member, you'll likely need to make quarterly estimated tax payments to the IRS (Form 1040-ES). Missing these results in underpayment penalties.
• State taxes — Some states impose franchise taxes, gross receipts taxes, or annual LLC fees on top of the federal pass-through taxation. California, for example, charges an $800 annual minimum franchise tax.

Common mistakes to avoid

After helping thousands of business owners, these are the most frequent errors:

• Skipping the Operating Agreement — This causes disputes when money or decisions are on the line. Write one before you need it.
• Commingling funds — Using your personal debit card for business expenses undermines the entire purpose of an LLC. Keep finances strictly separate.
• Missing annual filings — Most states require annual or biennial reports. Miss one and your LLC can be administratively dissolved, leaving you personally liable.
• Paying for unnecessary services — You generally don't need to hire a lawyer or an expensive formation service. Filing directly with your Secretary of State is straightforward and saves hundreds of dollars.
• Not understanding self-employment tax — LLC members pay self-employment tax (15.3%) on their share of profits. For higher earners, electing S-corp tax treatment can reduce this — consult a CPA once profits exceed roughly $40,000–$60,000/year.
• Ignoring insurance — An LLC protects personal assets from business debts, but it doesn't protect the business itself. General liability insurance, professional liability (E&O), and workers' comp (if you have employees) are separate and important.

Stay informed about business trends and regulations by checking our business topic page and today's trending articles.

Ongoing compliance checklist

Forming an LLC is the easy part. Keeping it in good standing requires ongoing attention:

• Annual reports — File with your Secretary of State (due dates and fees vary by state). Set a calendar reminder 30 days before the deadline.
• Registered Agent — Keep your registered agent current. If you change agents, file an update with the state.
• Business license renewals — Most local business licenses expire annually. Check your city and county requirements.
• Tax filings — File federal and state returns on time. Mark Q1 (April 15), Q2 (June 15), Q3 (September 15), and Q4 (January 15) for estimated tax payments.
• Maintain the corporate veil — Keep business and personal finances separate, hold member meetings if your operating agreement requires them, and maintain adequate capitalization. Courts can "pierce the veil" if you don't treat the LLC as a separate entity.
• BOI Report — FinCEN's Beneficial Ownership Information (BOI) reporting rules have changed several times. As of the latest guidance, most domestic reporting companies are exempt from BOI filing requirements. Check fincen.gov/boi for the current status before assuming you need to file — the rules may shift again.