What is an LLC, and do you need one?

How does an LLC work?

An LLC is an entity of its own under the law of the state that created it, separate from the people who own it. The owners are called members.

Each state writes its own LLC law. Texas, for example, sets its rules in the Business Organizations Code, and its registered agent section is Tex. Bus. Orgs. Code § 5.201. That is why fees, form names and yearly filings change from one state to the next, while the basic idea stays the same everywhere.⁴

Who runs an LLC?

An LLC is either run by its members (member-managed) or by managers the members appoint (manager-managed). With one owner, member-managed is the simple setup. A manager-managed LLC separates who owns the business from who handles its daily decisions and signs for it.

States sometimes ask who runs the company in their yearly filings. The Texas Public Information Report lists all managers (and all members if member-managed), so the choice is reported to the state.⁵

What is the operating agreement?

The operating agreement is the members' own contract about ownership shares, voting, profits and what happens when someone leaves. The operating agreement guide covers what it contains, whether states ask for it and which plans include a template.

What does limited liability protect?

Limited liability means the LLC's debts and legal judgments are generally the company's to pay, keeping the owners' personal savings and home apart from them.

The SBA says an LLC does this "in most instances," not in every case.

Compare a sole proprietorship, where the owner runs the business without forming a separate entity. The SBA describes it this way: a sole proprietorship is not a separate business entity, and the owner can be held personally liable for business debts. Forming an LLC is the step that creates a separate entity to carry those obligations.¹

The LLC itself has to stay on the state's books. States such as Wyoming and Florida require a registered agent to be maintained, and missing that rule can end the company. In Wyoming, if an LLC has no agent and doesn't fix it after notice, it is deemed defunct and forfeits its articles. Florida's rule: Failure to appoint and maintain a registered agent is a ground for administrative dissolution (s. 605.0714(1)(c)). Yearly reports carry a similar risk: a Wyoming LLC is administratively dissolved if not filed within 60 days. The annual report guide explains this state by state.^{6, 7, 8}

How the shield applies to a particular business, contract or personal guarantee is a legal question. An attorney licensed in your state can answer it for your facts.

How is an LLC taxed?

The IRS taxes an LLC by how many members it has, unless the LLC elects otherwise. A one-member LLC is disregarded as separate from its owner; a domestic LLC with two or more members is a partnership.

In the IRS wording, a single-member LLC is disregarded as separate from its owner by default. A multi-member LLC is different: a domestic LLC with at least two members is a partnership by default, and it should file Form 1065, U.S. Return of Partnership Income. The single-member vs multi-member guide walks through the paperwork for each.^{2, 3, 9}

Can an LLC choose a different tax treatment?

Yes, the default is only a starting point, and an LLC can change it with a form filed with the IRS. Filing Form 8832, Entity Classification Election lets an LLC elect its classification, including treatment as a corporation. An LLC that wants S corporation status uses Form 2553, Election by a Small Business Corporation, signed by all the shareholders; under the IRS rules, an entity eligible to elect corporate treatment (such as an LLC) can elect S status by filing Form 2553, without a separate Form 8832. The filing deadline, the shareholder rules and what changes after an election are in the S corporation election guide.^{9, 10, 11}

What about self-employment tax?

Owners of a default single-member LLC pay self-employment tax on their earnings. The IRS rate is 15.3% (12.4% social security tax plus 2.9% Medicare tax) on net earnings, and a single-member LLC owner pays it the same way as a sole proprietor, so forming an LLC doesn't change this on its own. The LLC vs sole proprietorship guide compares the two side by side. For what your own numbers mean, talk to a tax professional.¹²

Do states tax LLCs too?

Some do, separately from income tax. California charges a yearly LLC tax of $800. Delaware's is a $400 annual LLC tax, due on or before June 1. Texas LLCs file an annual Franchise Tax Report with a Public Information Report (PIR) with the state Comptroller, and there is no tax due at or below the $2,650,000 revenue threshold (2026 to 2027 report years), but an information report is still required.^{13, 14, 15, 16}

What does forming an LLC involve?

Forming an LLC means choosing a name, naming a registered agent, filing a formation document with the state and paying its fee. After that come an EIN, an operating agreement and the state's recurring report.

1. Pick a name the state will accept and check that no other business on its records uses it.
2. Name a registered agent, the person or company that receives legal papers for the LLC at an address in that state.
3. File the formation document. Texas calls it the Certificate of Formation to Limited Liability Company (Form 205); California uses the Articles of Organization (Form LLC-1).^{17, 18}
4. Get an EIN (employer identification number) from the IRS if the LLC needs one. The IRS charges nothing (free; the IRS never charges a fee for an EIN).¹⁹
5. Write an operating agreement among the members.
6. Put the state's yearly or every-other-year report on the calendar.

Each step has more detail in the how to form an LLC guide, and each state's own page, such as forming an LLC in Texas, gives the exact forms and filing methods. The registered agent guide covers who can serve, and the EIN guide covers when an LLC needs its own number. The IRS short version: a single-member LLC needs its own EIN if it has any employees or must file certain excise tax forms; otherwise it generally uses the owner's SSN or EIN for income tax.²

Speed differs too. In Wyoming, online filings are active immediately, while California online filings take 5 days or less and paper forms 10+ days, as the LLC timeline guide shows.^{8, 18}

How do LLC rules differ between states?

The idea of an LLC is national, but filing fees, yearly reports, state taxes and a few unusual rules are set by each state. A few state examples show how wide the range is.

• Wyoming charges $100 to form an LLC and a yearly license tax of $60 minimum, or $0.0002 per dollar of Wyoming assets if greater (annual report license tax). See forming an LLC in Wyoming.^{8, 20}
• Delaware charges $110 to form, with no annual report required; LLCs pay the annual tax described above instead. See forming an LLC in Delaware.^{21, 22}
• California's fee is $70, and it asks for a Statement of Information within 90 days of formation, then every two years (biennial). See forming an LLC in California.¹⁸
• New York requires new LLCs to publish a notice in two newspapers chosen by the county clerk for six consecutive weeks, and every LLC must designate the Secretary of State as its agent for service of process. See forming an LLC in New York.^{23, 24}
• Florida's annual report costs $138.75 when filed January 1 to May 1 each year. A late report adds a $400 late fee after May 1 (total $538.75). See forming an LLC in Florida.^{25, 26}
• Nevada's yearly filing is the Annual List of Managers or Members, filed with the State Business License renewal, and the first list goes in with the formation filing (Initial List of Managers or Members ($150) due when the Articles of Organization are filed, along with the $200 State Business License). See forming an LLC in Nevada.^{27, 28}

The state fees table puts every state's filing fee and recurring fee in one list.

Should you form the LLC in another state?

A lower fee elsewhere can be offset by registering at home as a foreign LLC. The SBA explains that a business active in other states may need to foreign qualify there by filing a Certificate of Authority; fees vary by state. An LLC formed in Wyoming that has to register in Texas pays Wyoming's fees plus the Texas registration fee of $750 (Form 304, LLC Application for Registration). The best state for an LLC guide compares home-state filing with Delaware, Wyoming and Nevada, and the foreign LLC guide covers registering in a second state.^{29, 30}

What does an LLC cost to form and keep?

The fixed cost is the state filing fee, with a median of $100 in our records, plus any recurring report fee or state tax. A formation service, registered agent or extras add to that.

The LLC cost guide lists the lowest and highest state fees and what services charge. Filing yourself costs only the state's fees, a choice weighed in the filing yourself vs using a service guide. We compare 12 formation services; the full plan list shows every tier, and the cost calculator adds your state's fees to each plan for the first and second year. Plans priced at zero still pass on the state fee, as the free LLC formation guide explains.

Do you need an LLC?

An owner can run a business as a sole proprietor without forming anything. An LLC adds a separate entity and, per the SBA, liability protection in most instances, at the cost of state fees and filings.

Owners often weigh a few practical points. Does the business sign leases, hire staff or take on debts that could follow the owner personally? Does a bank, platform or client ask for a registered business? Will the yearly report and any state tax be worth it in the state where the business operates? Answers to those questions differ by business, and the LLC vs sole proprietorship guide sets out the trade in liability, tax and paperwork.

One past filing is gone for most new owners. U.S. companies are permanently exempt from BOI reporting under a FinCEN final rule effective August 14, 2026, so a newly formed U.S. LLC no longer files a beneficial ownership report with FinCEN. The exemption covers U.S. companies; companies formed abroad and registered to do business in a state are treated differently, since foreign entities that are reporting companies must still report BOI. The LLC for non-U.S. residents guide covers founders outside the U.S., and the services for non-U.S. founders list shows which providers serve them.^{31, 32}

If you go ahead, the services for first-time founders list orders providers by what they include for new owners, and how we rate explains the ordering.