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How to Start an LLC: A 6-Step Guide and Mistakes to Avoid

A practical six-step guide to forming an LLC in the United States, with state-by-state caveats, EIN and tax basics, current BOI guidance, and common pitfalls.
From TheFinanceBase Team4 min to read

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To start an LLC, form it in the state where you actually operate, file that state’s formation document, and then handle its internal governance, federal tax setup, licenses, and ongoing filings. The details—including fees, forms, deadlines, and permits—vary by state and locality, so use the official business-registration and tax sites for every jurisdiction where the business will operate.

How to start an LLC in six steps

This is a practical sequence, not a uniform legal checklist. State law governs LLC formation, and your business activity, location, employees, and ownership can add requirements. The U.S. Small Business Administration (SBA) says registration costs are less than $300 in most cases, but that broad estimate is not a quote for any particular state. FinCEN’s current fact sheet gives a broad state LLC formation-fee range of $40 to $500, depending on the state. These figures use different framings; check the state’s current fee schedule for your actual cost.

  1. Choose where to form and operate

    For many small businesses, the simplest starting point is the state where the business is located or conducts business. Where you operate can affect taxes, zoning, and regulation. The SBA explains that forming in one state while doing business in another may require foreign qualification in the operating state, along with additional taxes and annual-report fees. A state marketed as having a tax advantage may therefore add obligations elsewhere. Review the SBA’s business registration guidance and location guidance, then confirm requirements with the relevant state agencies.

  2. Choose and check the LLC name

    Check the business-name rules and availability in the state where you plan to form the LLC before submitting paperwork. The state registry is the authoritative place to check its records; naming rules and availability are state-specific. The SBA lists a business name among the information commonly needed for registration in its registration guidance.

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  3. Appoint a registered agent and file the formation document

    The SBA says an LLC needs a registered agent in its formation state before filing. The agent receives official papers and legal documents for the business. Then file the state’s LLC formation document—commonly called articles of organization—using that state’s form and fee schedule. The document and required information differ by state, so follow the state’s own instructions rather than assuming another state’s form applies. See the SBA’s registration guidance.

  4. Prepare an operating agreement

    An operating agreement can set out who owns the business, how voting and management work, how profits are distributed, and what happens if a member wants to transfer an interest or leave. Whether state law requires one depends on the state. The SBA recommends creating one even where it is not mandated. It is generally kept with the company’s records rather than filed with the state. If there is no agreement, applicable state default rules may govern internal matters. See the SBA’s business-structure guidance.

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  5. Get an EIN and decide how the LLC will be taxed

    An employer identification number (EIN) is a federal tax ID. Whether an LLC needs one depends on factors such as whether it has employees and which tax filings apply. The SBA says to apply through the IRS for free and warns: “Do not apply for an EIN on websites that charge a fee – the EIN application is free of cost.” Use the SBA’s EIN guidance and the IRS’s official application process.

    Forming an LLC does not automatically elect S corporation tax treatment. For federal income tax, a domestic single-member LLC is generally treated by default as a disregarded entity, while a domestic LLC with multiple members is generally treated as a partnership, unless it elects corporate treatment. Certain employment and excise tax rules treat a single-member LLC separately. Review the IRS’s single-member LLC tax guidance and get qualified tax advice if you are considering an election.

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  6. Check licenses, taxes, banking, and ongoing compliance

    State formation is only one part of launching. Depending on the business activity and locations, you may need state or local tax registration, industry licenses, permits, zoning approval, or other authorizations. Check with the relevant revenue agencies, licensing offices, and zoning authorities. Ask the state about initial or annual reports, franchise taxes, and deadlines; businesses operating in multiple states may have obligations in more than one. The SBA covers taxes in its tax guidance and includes opening a business bank account in its launch steps.

Common LLC formation mistakes to avoid

  • Forming somewhere that does not match where you operate. A second state may require foreign qualification, reporting, and fees. Compare the obligations in the formation state with those where the business actually operates.
  • Assuming the state filing completes the launch. Local permits, industry licensing, zoning, tax registration, and recurring reports may still apply. Check the relevant state and local authorities for your business and location.
  • Skipping an operating agreement because it is not filed. The agreement is an internal governance document. Without one, state default rules may apply to internal matters.
  • Paying a third-party website to get an EIN. The IRS application is free; use official IRS channels rather than a site charging an application fee.
  • Assuming every LLC has the same federal tax status. Default treatment depends in part on the number of members, and an LLC may make an election. Formation itself is not an S corporation election.
  • Relying on outdated BOI reporting advice. FinCEN’s current rule differs from older guidance; check its current page rather than assuming an old article remains accurate.
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Do U.S.-formed LLCs need to file a BOI report?

As of October 8, 2026, FinCEN says U.S.-created companies and U.S. persons are exempt from beneficial ownership information (BOI) reporting under a final rule issued August 11, 2026, effective August 14, 2026. Certain entities formed under foreign law and registered to do business in the United States may still have reporting duties. This federal BOI rule is separate from state LLC formation, tax, and reporting obligations. Check FinCEN’s current BOI page for applicable requirements; older guidance, including older SBA material, may describe rules that have since changed.

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