How to Start an LLC: The Real Guide (With State-by-State Costs)

# How to Start an LLC: The Real Guide (With State-by-State Costs)

I've helped hundreds of business owners open their first bank accounts at Holdings. A lot of them come to us right after forming their LLC, and the number one thing I hear is: "That was way easier than I expected."

They're right. Starting an LLC is one of those things that sounds complicated but is actually pretty straightforward once you know the steps. The entire process takes most people a few hours spread over a week or two — and the filing itself is often done in under 30 minutes.

But here's where people get tripped up: they pay a service $500+ to do something they could handle themselves, or they skip critical steps like the operating agreement and end up with problems down the road.

This guide walks you through the entire process — step by step, state by state, with real costs. No upsells, no "contact us for pricing." Just the information you need to get your LLC set up right.

What Is an LLC (And Why It Matters)

An LLC — Limited Liability Company — is a business structure that separates your personal assets from your business. If your business gets sued or takes on debt, your personal bank account, your house, your car — those are protected.

That's the "limited liability" part. It's a legal wall between you and your business.

Here's what an LLC gives you:

• Personal asset protection. Business debts and lawsuits stay on the business side of the wall.
• Tax flexibility. By default, you're taxed as a sole proprietor (single-member) or partnership (multi-member). But you can elect S-Corp taxation later if it saves you money. More on that in our LLC vs S-Corp vs Sole Prop guide.
• Credibility. Banks, clients, and vendors take you more seriously with an LLC than a sole proprietorship.
• Simplicity. Way less paperwork and formality than a corporation. No board meetings, no shareholder votes, no annual minutes (in most states).

The bottom line: if you're running a real business — not a weekend hobby — an LLC is almost always the right first move.

Single-Member vs Multi-Member LLC

Before you file, you need to know which type you're forming.

Single-Member LLC (SMLLC): One owner. This is you running your own thing. The IRS treats it as a "disregarded entity" — meaning your business income goes straight on your personal tax return (Schedule C). Super simple.

Multi-Member LLC: Two or more owners (called "members"). The IRS treats this as a partnership by default. You'll file a partnership return (Form 1065) and each member gets a Schedule K-1.

The filing process is identical for both. The difference is in your operating agreement (which spells out who owns what percentage and how decisions get made) and how you handle taxes.

My take: If it's just you, single-member LLC is the move. If you have a co-founder or partner, multi-member LLC with a rock-solid operating agreement. Don't skip that part — I've seen partnerships blow up because two founders assumed they agreed on things they never actually discussed.

The 7-Step Process to Form Your LLC

Here's exactly what you need to do, in order.

Step 1: Choose Your State

Most people should form their LLC in the state where they live and do business. Full stop.

You've probably heard about forming in Delaware or Wyoming for "better laws" or "lower taxes." Here's the reality: unless you're raising venture capital or running a company with complex corporate governance, forming out of state just means you'll pay fees in TWO states — your formation state AND your home state (where you'll need to register as a "foreign LLC").

Form in your home state. It's simpler, cheaper, and perfectly fine for 95% of small businesses.

Step 2: Name Your LLC

Your LLC name needs to:

• Be unique in your state (search your Secretary of State's business database)
• Include "LLC" or "Limited Liability Company" in the name
• Not include restricted words like "bank," "insurance," or "university" without special approval

Most states let you search available names on the Secretary of State website for free. Do this before you file — nothing worse than completing your paperwork and getting rejected because someone took your name.

Pro tip: If you find a name you love but aren't ready to file yet, most states let you reserve it for 60–120 days for $10–$50.

Step 3: Choose a Registered Agent

Every LLC needs a registered agent — a person or company that receives legal documents (lawsuits, government notices) on behalf of your business.

Your options:

• Be your own registered agent. Free, but you need a physical address in the state (not a PO box) and you need to be available during business hours. If you work from home, this is your address going on public record.
• Use a registered agent service. $50–$300/year. They provide an address, handle your legal mail, and keep your home address off public records.

My recommendation: If privacy matters to you at all, use a service. Your registered agent address goes on public filings that anyone can look up. For $100–$150/year, it's worth keeping your home address off the internet.

Step 4: File Your Articles of Organization

This is the actual formation document. In most states, it's called "Articles of Organization" (some states call it a "Certificate of Formation" or "Certificate of Organization").

You'll need:

• LLC name
• Registered agent name and address
• Principal office address
• Organizer name (that's you)
• Whether it's member-managed or manager-managed
• Effective date (usually "upon filing")

Member-managed vs Manager-managed: If all members are actively involved in running the business, choose member-managed. If some members are passive investors, choose manager-managed. Most small LLCs are member-managed.

In most states, you file online through the Secretary of State's website. It takes 10–15 minutes. Some states still require paper filing by mail.

Processing times vary wildly: some states approve within 24 hours (online filing in states like Wyoming), others take 4–6 weeks (looking at you, New York). Most offer expedited processing for an additional fee.

See the full cost breakdown by state below.

Step 5: Write Your Operating Agreement

This is the document most people skip — and the one that matters most.

An operating agreement is an internal document that defines:

• Who owns what percentage of the LLC
• How profits and losses are divided
• Who manages day-to-day operations
• How decisions get made (unanimous? majority?)
• What happens if a member wants to leave
• What happens if a member dies or becomes incapacitated
• How disputes are resolved

"But I'm a single-member LLC. Do I really need one?"

Yes. Here's why:

1. It reinforces your liability protection. Without an operating agreement, a court might argue your LLC is just you operating as yourself — "piercing the corporate veil." An operating agreement proves the LLC is a separate entity.
2. Banks want to see it. When you open a business bank account, many banks ask for your operating agreement. We do too.
3. It's your rulebook. Even as a solo owner, it documents things like what happens to the LLC if something happens to you.

You don't need a lawyer for this (though one doesn't hurt for multi-member LLCs). Plenty of free templates online work fine for single-member LLCs. For multi-member LLCs with significant money involved, spend the $500–$1,500 on an attorney. It's cheap insurance.

Step 6: Get Your EIN

An EIN (Employer Identification Number) is like a Social Security number for your business. You need one to:

• Open a business bank account
• Hire employees
• File business tax returns
• Apply for business credit

Getting an EIN is free and takes about 10 minutes on the IRS website. We wrote a complete walkthrough: How to Get an EIN: Step-by-Step Guide.

Do this right after your LLC is approved. You'll need the EIN for your bank account.

Step 7: Open a Business Bank Account

This is where a lot of new LLC owners drop the ball. They keep using their personal bank account "for now" and end up with a mess at tax time.

Separate your business and personal finances from day one. It's not optional — it's how you maintain your liability protection and keep your books clean.

What you'll need to open an account:

• Articles of Organization (your approved filing)
• EIN confirmation letter (from the IRS)
• Operating agreement
• Government-issued ID

At Holdings , we built our business bank account specifically for new LLCs and small businesses. Free checking, no minimums, 1.75% APY, AI-powered bookkeeping that categorizes your transactions automatically. Banking partner i3 Bank, Member FDIC, up to $3M in FDIC coverage through our sweep network.

Open your account here →

For more detail on choosing the right account, check out our full guide: How to Open a Business Bank Account.

LLC Filing Fees by State: The Complete List

Here's what every state charges to file your Articles of Organization. These are the state filing fees only — they don't include registered agent services, expedited processing, or name reservations.

Cheapest states to form: Kentucky ($40), Arkansas ($45), Arizona ($50), Hawaii ($50), Michigan ($50), New Mexico ($50), Missouri ($50)

Most expensive states to form: Massachusetts ($500), Tennessee ($300+), Texas ($300), Alaska ($250)

Cheapest ongoing costs: New Mexico, Mississippi, Missouri, Ohio, Idaho (no annual reports), Colorado ($10/year)

Watch out for: California's $800 annual franchise tax (even if you made $0), New York's publication requirement ($300–$1,500+), Massachusetts' $500 annual report.

📋 [Download the LLC Formation Checklist by State →](/downloads/how-to-start-an-llc-state-guide/llc-formation-checklist.pdf) — Quick reference with filing fees, processing times, and annual requirements for all 50 states.

After You File: The First-Week Checklist

Your LLC is approved. Now what? Here's what to do in your first week:

Day 1–2: Get Your EIN

Apply at IRS.gov/EIN. It's free and takes 10 minutes. You'll get your EIN immediately if you apply online. Full walkthrough: How to Get an EIN.

Day 2–3: Open a Business Bank Account

Don't wait on this. The longer you run business transactions through your personal account, the messier your books get.

What you need:

• EIN confirmation
• Articles of Organization
• Operating Agreement
• Your ID

Holdings makes this fast — you can open an account online in minutes. Free checking, 1.75% APY, and our AI bookkeeping categorizes every transaction automatically. That means less time sorting receipts and more time doing actual work.

Open your Holdings account →

Day 3–5: Set Up Your Accounting

At minimum, you need to track income and expenses from day one. This is where most new business owners fall behind, and it costs them at tax time.

Holdings' expense tracker handles this automatically — every transaction that hits your account gets categorized. But whatever you use, start tracking now.

Day 5–7: Handle State-Specific Requirements

Depending on your state and business type, you might need:

• Business license — Check your city and county requirements
• DBA filing — If you're doing business under a name different from your LLC name
• Sales tax permit — If you're selling physical products
• Professional license — If you're in a licensed profession (real estate, accounting, etc.)

Common LLC Mistakes (And How to Avoid Them)

I see these constantly:

1. Not Getting a Separate Bank Account

I can't stress this enough. Commingling personal and business funds is the fastest way to lose your liability protection. A creditor's attorney will argue that your LLC is just a shell if you're running everything through one account.

2. Skipping the Operating Agreement

"I'll do it later" turns into "I never did it" which turns into a problem when you need a bank account, bring on a partner, or face a legal issue. Do it now.

3. Forgetting Annual Reports

Most states require annual or biennial reports. Miss one and your LLC can be administratively dissolved — meaning you lose your liability protection without even knowing it. Set a calendar reminder.

4. Paying Too Much for Formation

Services like LegalZoom charge $79–$349+ for something you can do yourself for the cost of the state filing fee. They're paying for marketing, not added value. The Secretary of State website has everything you need.

5. Forming in the Wrong State

Unless you have a specific legal or strategic reason, form in your home state. "Delaware is better for business" doesn't apply to your freelance design LLC.

6. Not Understanding Self-Employment Tax

Forming an LLC doesn't change your tax rate. As a single-member LLC, you'll pay self-employment tax (15.3%) on your net income. Understanding this upfront prevents sticker shock. Read our Self-Employment Tax Guide to know what you're in for and how to reduce it.

When to Consider S-Corp Election

Once your LLC is generating consistent profit — generally $60,000+ — it might make sense to elect S-Corp taxation. This doesn't change your LLC structure; it changes how the IRS taxes you.

The short version: instead of paying self-employment tax on ALL your profit, you pay yourself a "reasonable salary" (which gets hit with payroll taxes) and take the rest as distributions (which don't).

It's not right for everyone, and it adds complexity (payroll, separate tax return). But it can save you thousands per year at the right income level.

We break this down with real numbers in our LLC vs S-Corp vs Sole Prop Decision Framework.

The Bottom Line

Starting an LLC is one of the best things you can do for your business. It protects your personal assets, gives you tax flexibility, and signals to clients and banks that you're running a real operation.

The process:

1. Choose your state (usually your home state)
2. Pick a unique name
3. Designate a registered agent
4. File Articles of Organization
5. Write your operating agreement
6. Get your EIN
7. Open a business bank account

Total cost: as low as $40 (Kentucky) to $500+ (Massachusetts), plus any annual fees.

Total time: a few hours of paperwork spread over a week.

And once your LLC is set up, Holdings is here to make the money side simple. Free business checking, 1.75% APY, AI bookkeeping that actually works, up to $3M in FDIC coverage. Banking partner i3 Bank, Member FDIC.

You're building a business. Let us handle the banking.

Open your Holdings account →

📋 [Download the LLC Formation Checklist by State →](/downloads/how-to-start-an-llc-state-guide/llc-formation-checklist.pdf)

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*This guide is for informational purposes only and does not constitute legal or tax advice. Consult with a qualified attorney or tax professional for advice specific to your situation. Holdings is a financial technology company, not a bank. Banking services provided by i3 Bank, Member FDIC.*

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More in this series:

• Starting a Business: The Complete Guide
• LLC vs S-Corp vs Sole Prop: Which Is Right for You?
• How to Open a Business Bank Account
• How to Get an EIN: Step-by-Step Guide

— Archer