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A Limited Liability Company (LLC) offers a flexible business structure that combines liability protection with simpler operations than a corporation. LLCs work well for many businesses, though they’re less common for venture-backed startups.

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What is an LLC?

An LLC is a business structure that provides:

Limited liability

Members’ personal assets are protected from business debts

Pass-through taxation

Profits flow directly to members’ personal tax returns

Flexible management

Can be member-managed or manager-managed

Fewer formalities

Less strict requirements than corporations

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LLC vs. corporation

Choose the structure that best fits your goals:
  • You want pass-through taxation to avoid double taxation
  • You don’t plan to raise venture capital
  • You prefer operational flexibility and fewer formalities
  • You’re running a real estate business, professional services, or small business
  • You have international members (easier than S-corporation restrictions)
Most venture capital firms won’t invest in LLCs due to tax complications. If you plan to raise VC funding, incorporate as a C-corporation instead.

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When LLCs make sense

LLCs are particularly well-suited for:
  • Bootstrapped businesses: Growing without outside investment
  • Service businesses: Consulting, agencies, professional services
  • Real estate: Property investment and management
  • Side projects: Testing ideas before committing to full incorporation
  • International founders: Members can be foreign nationals without restrictions

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Key LLC formation documents

Forming an LLC requires fewer documents than incorporating:
1

Certificate of formation

Filed with the state to create your LLC. Includes your LLC name, purpose, registered agent, and duration.Also called “articles of organization” in some states.
2

Operating agreement

Internal document defining how your LLC operates, including member rights, profit distribution, and management structure.Learn more about operating agreements →
3

EIN application

Federal tax ID number required for hiring employees and opening bank accounts.
4

Member contributions

Records of initial capital contributions from each member.
Unlike corporations, LLCs don’t have shareholders, stock, or bylaws. Instead, they have members, membership interests, and operating agreements.

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Delaware LLC formation package

Standardized LLC formation templates are available:

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Delaware LLC Package

Includes essential documents for forming a Delaware LLC:
While these templates are designed for Delaware and New York, the structure is similar across most states.

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State-specific considerations

Different states have varying LLC requirements:
  • Cost: 90filingfee+90 filing fee + 300 annual franchise tax
  • Benefits: Well-established LLC law, strong legal precedents
  • Privacy: No member names required in public filings
  • Flexibility: Easy to convert to corporation later if needed
  • Cost: 100filingfee+100 filing fee + 60 annual report
  • Benefits: Strong privacy protections, no state income tax
  • Reputation: Popular for asset protection
  • Cost: Varies by state ($50-500)
  • Benefits: Simpler compliance if operating locally
  • Consideration: May need to foreign qualify in Delaware anyway if raising funds

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LLC formation checklist

1

Choose your LLC name

Must include “LLC” or “Limited Liability Company” and be available in your state
2

Select a registered agent

Required contact in your formation state for legal documents
3

Determine management structure

Decide if member-managed (all members involved) or manager-managed (designated managers)
4

Draft certificate of formation

Complete state filing document with basic LLC information
5

File with Secretary of State

Submit certificate with required filing fee
6

Create operating agreement

Draft internal rules for LLC operations, even if not required by state
7

Obtain EIN from IRS

Apply online for federal tax identification number
8

Document member contributions

Record initial capital contributions from each member

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Single-member vs. multi-member LLCs

The number of members affects taxation and operations:

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Single-member LLCs

  • Taxed as “disregarded entity” (like sole proprietorship)
  • Report income on personal tax return Schedule C
  • Simpler accounting and tax filing
  • Still provides liability protection

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Multi-member LLCs

  • Taxed as partnership by default
  • Files partnership tax return (Form 1065)
  • Issues K-1 forms to members
  • Requires operating agreement to define member relationships
Both single-member and multi-member LLCs can elect to be taxed as S-corporations or C-corporations if beneficial.

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Operating agreement essentials

Even if your state doesn’t require it, create an operating agreement covering:
  • Ownership percentages: Each member’s ownership interest
  • Capital contributions: Initial and future contribution requirements
  • Profit and loss allocation: How to distribute earnings
  • Management structure: Decision-making authority and voting rights
  • Transfer restrictions: Rules for selling or transferring interests
  • Dissolution procedures: How to wind down the LLC
See detailed operating agreement guide →

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Ongoing LLC requirements

Maintain your LLC with regular compliance:

Annual reports

File annually with state (requirements vary)

Franchise taxes

Pay annual state fees to maintain good standing

Registered agent

Maintain continuous registered agent in formation state

Records

Keep operating agreement, meeting notes, and financial records
If you operate in multiple states, you’ll need to foreign qualify (register as out-of-state LLC) in each state, which adds filing fees and compliance requirements.

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Converting LLC to corporation

If you initially form an LLC but later want to raise venture capital:
1

Evaluate timing

Convert before starting fundraising conversations with VCs
2

Choose conversion method

Options include statutory conversion, merger, or forming new corporation and transferring assets
3

Consider tax implications

Consult with tax advisor about potential tax consequences of conversion
4

Update contracts and accounts

Transfer contracts, bank accounts, and licenses to new corporation

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When to use formation services

Several options for LLC formation help:
  • DIY: File yourself for $50-200 in state fees
  • Online services: LegalZoom, Incfile, ZenBusiness ($0-300 + state fees)
  • OpenLaw templates: Free automated templates for formation documents
  • Attorney: $500-2,000 for full-service formation with custom documents
For simple single-member LLCs, online services or DIY may be sufficient. For multi-member LLCs with complex arrangements, consider attorney guidance.

Operating agreement

Essential internal governance document for LLCs

Incorporation guide

Compare LLC formation with corporation incorporation

Founder Accord

Pre-formation founder agreement

Certificate of formation

State filing document creating your LLC

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