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LLC (Limited Liability Company)

The business structure that keeps your personal bank account out of your business problems, and what it actually costs to set one up.

Updated March 21, 2026

An LLC is a legal business structure that separates your personal assets from your business’s debts and legal problems. If your business gets sued, the lawsuit targets the LLC, not you personally. Your house, your savings account, your car: off the table. Formation costs between $50 and $500 depending on your state, takes anywhere from one business day to two weeks, and is the most common structure for small business owners in the United States for exactly this reason.

Most women starting a business operate as sole proprietors without realizing it. The moment you make your first sale without registering a business entity, that’s what you are by default. And as a sole proprietor, there’s no legal wall between you and your business. Every lawsuit, every unpaid debt, every contract dispute comes straight to you personally. An LLC builds that wall.

What Liability Protection Actually Means

The word “limited” in Limited Liability Company refers to your personal exposure. If the business owes money or gets taken to court, the creditor’s reach stops at the LLC’s assets. Not yours.

Here’s what that looks like in practice: a skincare founder ships a product, a customer has a severe allergic reaction, and files a lawsuit for $300,000. If she operates as a sole proprietor, that lawsuit can come after her personal bank account, her car, her home equity. If she operates as an LLC, the lawsuit targets the company. The company’s assets are at risk. Her personal ones aren’t.

This is not hypothetical in consumer product businesses. Product liability claims happen. Customer disputes happen. A $20,000 legal judgment against a sole proprietor can empty someone’s personal savings. The same judgment against a well-structured LLC leaves her financial life intact.

There are limits to what an LLC protects, and they matter: personal guarantees on loans, personal wrongdoing, and commingling personal and business funds can all expose you anyway. More on that below.

How LLCs Are Taxed

By default, an LLC is a “pass-through” entity, meaning the business itself pays no federal income tax. The profits flow through to the owner’s personal tax return and get taxed there. This is simpler than it sounds: you report LLC income on Schedule C (for single-member LLCs) or a partnership return (for multi-member), and pay tax at your personal rate.

Most small business owners stick with this default because it’s straightforward and avoids double taxation, which is what happens with C-corporations where the company pays corporate tax and shareholders also pay personal tax on dividends.

One alternative worth knowing about: once your LLC is generating consistent profit, you can elect to have it taxed as an S-corp. This can reduce your self-employment tax burden by splitting income between a salary and distributions. The right time to consider it is generally when you’re netting $50,000 or more in annual profit, because the accounting and payroll costs need to be offset by actual savings. A CPA can run the numbers for your specific situation.

Single-Member vs. Multi-Member

A single-member LLC has one owner. A multi-member LLC has two or more. The distinction matters for taxes and governance.

Single-member LLCs are taxed as sole proprietors by default, with income reported on Schedule C. Multi-member LLCs are taxed as partnerships by default, requiring a separate partnership return (Form 1065) and K-1 forms for each member. Neither structure owes federal income tax at the entity level under the default classification.

Multi-member LLCs also require more careful documentation of who owns what and how decisions get made, which is why an operating agreement becomes especially important.

The Operating Agreement

An operating agreement is the internal document that governs your LLC: who owns what percentage, how decisions are made, how profits are distributed, and what happens if someone wants to leave. Most states don’t require it for single-member LLCs, and some states don’t require it at all.

You should have one anyway. Without an operating agreement, you’re operating under your state’s default LLC rules, which may not reflect how you actually want the business to work. If you have a business partner and something goes wrong, the absence of a written agreement is where disputes get very expensive very fast.

For a single-member LLC, the operating agreement is shorter and simpler, but it still establishes on paper that you and the business are separate, which reinforces the liability protection you’re paying for.

Member-Managed vs. Manager-Managed

Most small LLCs are member-managed, meaning the owners run the company directly. This is the default in most states and the right setup for the vast majority of founders.

Manager-managed LLCs designate a specific manager, who can be a member or an outside person, to make day-to-day decisions while other members take a passive role. This structure is more common when the LLC has investors who want a financial stake but don’t want to be involved in operations. If you’re building a business with active participation from everyone involved, member-managed is almost certainly what you want.

What to Name Your LLC

The legal requirements are narrow: your name must include “LLC,” “L.L.C.,” or “Limited Liability Company,” and it must be distinguishable from other names already registered in your state. Most state Secretary of State websites let you search existing names for free before you file.

The more interesting question is whether your LLC name needs to match your brand name. It doesn’t.

Many founders name their LLC something functional, “Thorn Digital LLC” or “Smith Holdings LLC,” and operate the actual business under a separate name called a DBA (doing business as). The LLC is the legal container. The DBA is the name that faces customers. You register a DBA with your county or state, it typically costs $10 to $50, and then you can accept payments, open bank accounts, and sign contracts under the brand name. This separation is useful if you plan to run multiple brands under one entity, if you might rename the brand later, or if you’d rather not have your operating name attached to every piece of state paperwork.

If you want your LLC name and brand name to be the same thing, do four checks before you file:

  • Search your state’s business registry. Your name needs to be distinguishable from existing LLCs in that state. If “Bloom Skincare LLC” is taken, “Bloom Skin LLC” might not be. Check before you get attached.
  • Search the USPTO trademark database. Go to TESS at the USPTO website, run a basic word mark search, and see if someone already has federal rights to that name in your category. If they do, you can legally form the LLC, but you’re building a brand on ground someone else owns. Ten minutes now can save a full rebrand later.
  • Check for domain availability. If the .com is owned by an active business in your space, you’re competing with them for every branded search on that name. That’s friction that compounds forever.
  • Check social media handles. Not legally required, but if the Instagram and TikTok handles are claimed by someone with an audience, that’s a real problem to solve from day one.

The name you put on the LLC paperwork is not necessarily the name your customers will know. Most founders don’t realize they have that flexibility, which is worth knowing before you file.

How to Form an LLC

Formation is a state-level process. You file Articles of Organization with your state’s business registration office, pay the filing fee, and the LLC is created. Here’s what that actually looks like:

  1. Choose your state. Form in the state where you’ll actually be doing business. For most founders, that’s their home state.
  2. Choose a name. The name must include “LLC,” “L.L.C.,” “Limited Liability Company,” or an approved variation. It must be distinguishable from other LLCs registered in that state. Most state business registration sites let you search existing names for free before you file.
  3. Appoint a registered agent. This is a person or company with a physical address in your state who is authorized to receive official legal and government documents on behalf of the LLC. You can be your own registered agent if you have a physical in-state address. Many founders use a registered agent service instead ($50 to $150 per year) to keep their home address off public business records.
  4. File Articles of Organization. Go to your state’s Secretary of State website, fill out the form, and pay the fee. Online filing typically takes one to five business days. Filing fees run $50 in Kentucky, $99 in New York, $70 in Texas, $500 in Massachusetts. California is $70 to file but has a $800 minimum annual franchise tax on top of that.
  5. Get an EIN. An Employer Identification Number is your business’s federal tax ID. You need it to open a business bank account, hire employees, and file federal taxes. Apply at IRS.gov, it’s free, and you receive it immediately online.
  6. Open a business bank account. This is not optional if you want your liability protection to hold. The account must be separate from your personal banking and used only for business transactions.
  7. Draft an operating agreement. Even if your state doesn’t require it.

What It Costs, State by State

Filing fees vary widely. The states where women-owned businesses are most concentrated tend to land in the middle of the range:

StateFiling FeeAnnual Report / Franchise Tax
California$70$800/year minimum
New York$200$25/year (biennial)
Texas$300$0 annual report; franchise tax based on revenue
Florida$125$138.75/year
Delaware$90$300/year
Wyoming$100$60/year minimum
Washington$200$60/year

California’s $800 annual minimum franchise tax applies even if the business made nothing during the year. That’s the most common shock for women who form an LLC in California before their business has revenue: the tax shows up whether or not there’s income to pay it from. Some states also require an initial publication notice, and New York is the most expensive case, running $1,000 to $2,000 in publication costs depending on the county.

The Delaware Myth

Delaware is famous as the preferred state for incorporation, and it’s genuinely useful for companies raising venture capital or planning to go public. Large corporations register there because Delaware has sophisticated business courts, flexible corporate law, and a court system that has been interpreting that law for 200 years.

For a small LLC with no outside investors, the Delaware advantage largely disappears. If you register in Delaware but operate in California, you’ll be required to register in California as a foreign LLC anyway, pay California’s $800 annual minimum, and maintain a Delaware registered agent on top of that. You’re paying twice and gaining nothing. Form in your home state unless you have a specific reason not to.

Wyoming is worth knowing about as an alternative for founders who want strong asset protection rules and low annual costs: Wyoming LLCs have some of the most robust charging order protections in the country and a $60 minimum annual fee.

Annual Requirements

An LLC is not a one-time filing. Most states require annual or biennial reports to keep the company in good standing, plus whatever franchise taxes apply in your state. Miss a filing and the LLC can be administratively dissolved, which strips you of the liability protection you formed it to have.

Set a calendar reminder for every annual deadline. The state will typically send a notice to your registered agent before the due date, which is one reason having a reliable registered agent matters.

What an LLC Cannot Protect You From

Three situations where the liability protection breaks down:

Personal guarantees. Banks and commercial landlords routinely require personal guarantees for small business loans and leases. When you sign a personal guarantee, you’re agreeing to be personally liable for that obligation regardless of the LLC structure. The LLC does not override a contract you voluntarily signed.

Commingling funds. This is the most common way founders accidentally erase their own liability protection. Using the business account for personal expenses, running personal purchases through the business card, mixing deposits: any of these can give a court grounds to “pierce the corporate veil,” a legal doctrine that holds you personally liable when the LLC and the person are effectively the same thing. Keep the business account for business. Keep your personal account for personal. No exceptions.

Personal wrongdoing. The LLC protects you from the business’s liabilities. It does not protect you from your own. Fraud, personal negligence, and intentional wrongdoing remain your problem regardless of what entity structure you operate under.

Real Examples

Sara Blakely ran Spanx as a sole proprietor for the first year and a half. She incorporated after the business had traction and it was clear she was building something real. Her reasoning, which she’s spoken about publicly, was pragmatic: she didn’t want to deal with the administrative overhead before she knew whether the idea would work. Once Spanx was generating revenue and she had manufacturing relationships and retail partnerships, the legal exposure made forming a proper business entity the obvious next step.

Tory Burch launched from her kitchen table in 2004, but she incorporated before her first sale. She’d spent six months doing research, had a proper business plan, and was building for retail from day one. Different risk tolerance, different launch strategy. Both women succeeded with different timing because the right answer depends on your specific situation, not a universal rule.

The general principle: if you’re testing an idea with no real revenue and no contracts with other parties, operating as a sole proprietor for a few months while you validate the concept is a reasonable choice. Once money is moving, once you have suppliers or customers under contract, once anyone can be harmed by your product or service, forming the LLC is no longer optional.

Frequently Asked Questions

Do I need a lawyer to form an LLC?

No. You can file Articles of Organization directly through your state’s Secretary of State website, and most states have made this straightforward. For a single-member LLC with no complicated ownership structure, hiring a lawyer is not necessary for formation. For a multi-member LLC, especially one with partners contributing different amounts or getting different percentages, an attorney to help draft the operating agreement is worth the cost. The formation itself is administrative; the operating agreement is where legal judgment matters.

Do I need an LLC if I haven’t made any money yet?

Not yet, but sooner than you think. If you’re still testing an idea and have no revenue, no contracts, and no products in anyone’s hands, operating as a sole proprietor is fine in the short term. Once any of those things changes, form the LLC before you proceed further. The cost is low enough that there’s no financial reason to wait past the point of your first real business transaction.

Can I have employees as an LLC?

Yes. You’ll need an EIN, which you need anyway, and you’ll need to set up payroll and comply with employment laws in your state. The LLC structure itself doesn’t complicate hiring. What it does require is that you pay yourself correctly: members of an LLC typically take “owner’s draws” rather than a payroll salary unless they’ve elected S-corp tax treatment, in which case paying yourself a reasonable salary is required.

What’s the difference between an LLC and a sole proprietorship?

A sole proprietorship is not a separate legal entity. You and the business are the same thing. You file taxes on Schedule C and pay self-employment tax, same as you would with a single-member LLC. The difference is entirely in liability: as a sole proprietor, your personal assets are exposed to any business lawsuit or debt. As an LLC member, they’re not. The tax treatment is nearly identical. The legal exposure is night and day.

What’s the difference between an LLC and a corporation?

A corporation is a separate legal entity like an LLC, but it has a more rigid structure: a board of directors, formal shareholder meetings, required record-keeping. Corporations issue stock rather than membership interests. They’re more appropriate for companies raising venture capital or planning to go public, because investors and the public markets expect corporate governance structures. For most women building small businesses, the LLC is simpler, more flexible, and equally protective.

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See Also

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