Editor's note: This post was originally published on February 25, 2022, and has been updated for accuracy, comprehensiveness, and freshness on March 4, 2026.
When considering business structures, a popular option to get started with is an LLC. But why pick this business structure over another, like a limited liability partnership ( LLP), or corporation?
Let's break down what an LLC is in real terms and how it works. We'll also cover key characteristics and the steps you need to take to set one up.
A limited liability company (LLC) is a business entity that provides entrepreneurs with protection against personal liability for business debts and obligations. These protections only apply if everything is properly formed and operated.
To put it another way, an LLC means that your personal assets can’t be touched to pay for debts racked up by the business.
If you come across a company or business with "LLC" in its name, it is a limited liability company. However, not all businesses will use the LLC designation in their name, even though they are an LLC.
One of the most notable examples is Google. The company is, in fact, an LLC belonging to the parent corporation, Alphabet, Inc.
The defining characteristic of an LLC is its ability to grant limited liability for its owners. Other important traits include:
Setting up an LLC is much simpler than creating a corporation. That said, it involves a few steps that you'll want to complete carefully.
Picking a name for your LLC is an important part of the LLC formation process. When choosing an LLC name, it has to meet certain requirements, such as:
However, your business can have both a legal name (the LLC’s name) and a doing business as (DBA) name.
The legal name is the name you will use in legal documents, but the DBA name might be what you use for marketing your business.
A registered agent is a person or another business that can accept legal and official documents on behalf of the LLC. States require LLCs to choose a registered agent and make the agent’s identity and contact information publicly known.
The exact designation requirements vary by state, but registered agents can usually include individuals, other LLCs, or corporations. States usually require these agents to have a physical location that can receive mail, but this location cannot be a post office box.
To choose a registered agent, you can select yourself or another representative of your business. But this results in reduced privacy because the registered agent’s contact information and location are publicly available. A registered agent must also be available at a physical location during business hours.
Given these limitations, a popular option is to hire a professional service company to serve as an LLC’s registered agent.
Sometimes referred to as a Certificate of Formation or Certificate of Organization, Articles of Organization is the official document filed with the appropriate business filing office (often the Secretary of State) to create the LLC.
Each state is different, but most states will require the Articles of Organization to include:
You or your lawyer will then file the Articles of Organization with the State Department (usually online), along with a filing fee.
This document identifies and explains how the LLC should work. Not all states require LLCs to have operating agreements, but it is a good idea to have one, as it can protect an LLC’s limited liability status and prevent disputes among the owners.
The exact contents of an operating agreement will vary, but it may include things like:
Remember that, while you don't file operating agreements, you should keep them in a safe place with other important business records.
An EIN, or employer identification number, is a number that the IRS assigns to business entities for tax purposes. When it comes to filing tax returns, an LLC's EIN is like an individual's Social Security number.
To get an EIN, simply go to the IRS’s website for EIN applications and apply for one for free.
Depending on the nature of your LLC and what it does, you'll also need to apply for any necessary licenses or permits, as well as create a business bank account.
The business bank account is important to help ensure owners don't lose their limited liability status. It also makes it easier to keep personal and business money separate and to track them for accounting and tax purposes.
Like any other business form, there are several pros and cons of an LLC to be aware of.
In addition to limited liability protections, pass-through taxation is another key advantage of an LLC. It allows LLC owners to “pass through” their business earnings to their personal income taxes, avoiding double taxation. LLCs can also hold real estate, making them common choices for real estate investors.
Plus, since LLCs are simpler structures than corporations, they don't need a board of directors, Articles of Incorporation, or other corporate formalities.
These types of entities also offer greater management and tax flexibility than corporations. This is because owners have more say over things like whether the LLC is taxed as a C corp or an S corp.
As beneficial as LLCs are, they come with several drawbacks, depending on which other business form you’re considering. Compared to a partnership or a sole proprietorship, an LLC has ongoing fees. You'll also have more paperwork and complexity to deal with as a result of these costs involved in creating an LLC.
Compared to a corporation, it is more difficult for an LLC to grow through outside investment. Corporations are set up to issue stock to investors, while LLCs can add new ownership members. However, most outside investors would prefer to own stock rather than become members of the LLC.
LLCs are popular business forms, but there are other forms to consider. Let's talk about some of the alternatives and their advantages:
Now that you understand what an LLC stands for and how it differs from other business structure types, you can decide whether it's right for you. Once you've established your business, it's still a good idea to have legal protections and guidance in place.
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The purpose of an LLC is to allow business owners to run their businesses without interference from shareholders while also protecting the owners from their business’s financial liabilities.
An LLC is a business structure that provides its owners with limited liability protection while also allowing them to maintain control over how they run the business.
Because LLCs are "pass-through entities," profits get taxed only after they pass through the LLC and are received by the owner(s). From there, the profits are taxed as part of the owner(s)' personal income.
A certificate of good standing is official proof from your state that your business is registered and current on its requirements. Most lenders and agencies want a recent one, so it helps to know how to get it before someone asks.
Whether the goal is selling a company, bringing in a business partner, or passing it to a family member, the LLC ownership transfer often involves reviewing the LLC's operating agreement and the applicable state's rules.
If you want to do business under a name that isn't your own legal name or your LLC's registered name, you need a trade name, also known as a doing business as (DBA) name.
A consulting agreement is a contract between a service provider, such as an independent contractor, and a recipient.
Hold harmless agreements can help reduce a business's liability by having signatories accept a certain amount of risk.
Getting an LLC in New York generally involves choosing a business name, filing Articles of Organization with the New York Department of State, creating a written Operating Agreement, completing New York’s publication requirement, and handling tax and business setup steps, like getting an EIN.
