What Is an LLC? How It Works, What It Costs, and Who It’s For
An LLC (limited liability company) is a business structure that legally separates your personal assets — your house, car, and savings — from your business’s debts and lawsuits. It costs $35–$500 in one-time state filing fees depending on the state, requires far less paperwork than a corporation, and by default its profits pass straight to your personal tax return with no corporate tax layer.
How an LLC actually works
When you form an LLC, the state recognizes your business as its own legal entity — separate from you. The business can own property, open bank accounts, sign contracts, and take on debt in its own name. If the business is sued or can’t pay its debts, creditors generally can only pursue the business’s assets, not yours. That separation — the “limited liability” — is the main reason over 5 million LLCs have been formed in the U.S. in recent years, and it’s something a sole proprietorship never gives you.
The people who own an LLC are called members. An LLC can have one member (a single-member LLC — the most common setup for freelancers and solo founders) or many. Members can run the company themselves (member-managed) or appoint managers (manager-managed).
LLC vs. the alternatives
| Sole proprietorship | LLC | Corporation | |
|---|---|---|---|
| Personal asset protection | None | Yes | Yes |
| Setup cost | $0 | $35–$500 state fee | $50–$500 + more formalities |
| Taxes | Personal return | Personal return by default; can elect S-corp or C-corp treatment | Corporate return (C-corp) or pass-through (S-corp) |
| Ongoing paperwork | None | Annual/biennial report in most states | Bylaws, board, minutes, annual filings |
| Best for | Testing an idea with low risk | Most small businesses | Startups raising venture capital |
What an LLC costs
Three numbers matter:
- Formation fee (one-time): $35–$500 paid to your state — most states charge $50–$200. See exact fees in our state-by-state guides.
- Ongoing state costs: most states require an annual or biennial report ($9–$300). California adds an $800/yr franchise tax; Arizona and Ohio require nothing at all.
- Optional services: a registered agent service (about $100–$300/yr) if you don’t want your address on public record, plus an EIN — which the IRS issues for free.
When an LLC is the right choice
Form an LLC when your business has real revenue, contracts, clients, employees, or anything that could create liability — which describes most businesses beyond the hobby stage. Stay a sole proprietor if you’re still testing an idea with negligible risk. Consider a C-corporation instead if you’re raising venture capital, since institutional investors typically require Delaware C-corps.
One common misconception: an LLC does not lower your taxes by itself. By default a single-member LLC is taxed exactly like a sole proprietorship. What it changes is protection — and it unlocks options later, like electing S-corp treatment once profits justify it.
$0 service fee + your state’s exact filing fee. About 5 minutes to start.
Frequently asked questions
What does LLC stand for?
Limited liability company — a state-registered business structure that separates the owners' personal assets from the business's debts and legal obligations.
How is an LLC taxed?
By default, profits pass through to the members' personal tax returns — a single-member LLC files like a sole proprietor, a multi-member LLC like a partnership. An LLC can also elect S-corp or C-corp tax treatment with the IRS if that saves money.
Can one person own an LLC?
Yes. Single-member LLCs are the most common type in the U.S. and are recognized in all 50 states.
How long does it take to form an LLC?
State processing ranges from 1–3 business days (Ohio, Florida) to 2–3 weeks (Texas, Arizona), with expedited options in most states. The application itself takes minutes.
Do I need an LLC to get an EIN?
No — sole proprietors can get an EIN too. But if you form an LLC, you'll want an EIN to open a business bank account. The IRS issues them free at irs.gov.
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FilingsHQ is a private document filing service, not a law firm, and does not provide legal or tax advice. For advice specific to your situation, consult a licensed professional. Last updated July 2026.