Establishing an LLC is a significant step that many business owners will take, one that provides a blend of flexibility, tax advantages, and liability protection. However, businesses sometimes may overlook the amount of time it takes to complete this process. Why does this matter? The speed of LLC formation can influence a company’s launch timeline, impact strategic planning, and even affect funding rounds. If you’re ready to move your business idea from concept to reality, understanding the time frame for establishing an LLC is key.
According to a survey conducted by CB Insights, unproductive business planning—such as failing to allow for the time it takes to form an LLC—was among the top reasons small businesses fail. When time is one of your most valuable assets, understanding the process and timeline for setting up an LLC can provide a realistic foundation for planning—and it can help avoid potential pitfalls down the line.
Below are the general steps required to form an LLC and an estimate of the time each step takes, which will allow you to better strategize your business development from inception to launch.
What’s in this article?
- What is an LLC?
- What types of businesses form LLCs?
- How to become an LLC
- How long does it take to form an LLC?
What is an LLC?
LLC stands for “limited liability company.” It is a specific type of business structure that combines elements of partnerships and corporations. Here are a few key characteristics of an LLC:
Limited liability
Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. This means that if the business can’t pay a creditor, the creditor cannot try to collect the debt from an LLC member’s personal assets—such as their bank account, house, or car. This concept is often referred to as “limited liability.”Flexible profit distribution
LLCs can distribute their profits in the way they see fit. Unlike a common partnership where it is equally split between partners, LLCs have the flexibility to distribute the profits in different ratios.Management
Members of an LLC can manage the company directly or can appoint a manager to handle the business’s affairs.No double taxation
Unless an LLC chooses to be taxed as a corporation, it is considered a “pass-through” entity, meaning that business income and expenses get reported on the personal income tax returns of the owners. This way, profits are only taxed once.Flexibility in decision-making
Generally, LLC members make decisions collectively, unless an operating agreement has designated a manager or managers for decision-making.
What types of businesses form LLCs?
Because LLCs offer flexibility, protection for personal assets, and tax advantages, they can be a beneficial structure for a wide range of business types—from small startups to larger established companies. Here are a few examples:
Consulting businesses
Many consultants choose to form LLCs because there is, typically, a low level of risk associated with their work, and they often work as an individual or as part of a small team. Consultants benefit from the personal liability protection that an LLC structure provides.Real estate companies
Many real estate investors form LLCs to protect their personal assets from liabilities associated with their properties. For example, if a real estate investor owns a property through an LLC (and not as an individual), and someone is injured on the property and files a lawsuit, the real estate owner’s personal assets are protected.Retail businesses
Brick-and-mortar store owners, as well as ecommerce business owners, might choose to form an LLC to protect their personal assets from potential business debts or lawsuits.Service providers
Service providers—a category that includes therapists, photographers, personal trainers, and many other professionals—might face liability from client interactions and can benefit from the protections that an LLC offers.Small contractors
Construction or renovation businesses often have a high level of risk in their work, and an LLC can offer them protection from potential liabilities.Tech startups
Many technology startups choose the LLC structure in the early stages because it’s flexible and easy to set up. As the business grows, it might transition to a corporation—especially if it’s seeking venture capital.
In addition to these examples, there are many other business models that might find advantages in establishing an LLC. It’s important to assess your business’s particular requirements and seek advice from a business consultant or legal professional to determine the most suitable structure.
How to become an LLC
Becoming an LLC involves several actions. Here is a brief overview:
Choose a name for your LLC: Your business name must be unique and end with “LLC” or “Limited Liability Company.” Most states have an online database where you can check name availability.
File the articles of organization: Your articles of organization include information such as your business’s name, its purpose, and the names of the owners. You will need to file this with your state’s Secretary of State office, along with a filing fee, which varies by state.
Choose a registered agent: Every LLC must have a registered agent—an individual or business entity responsible for receiving important legal documents on behalf of your LLC.
Create an operating agreement: This is a legal document that outlines the ownership and operating procedures of the LLC. Not all states require an operating agreement, but it’s a good idea to have one.
Get an Employer Identification Number (EIN) from the IRS: Most LLCs are required to obtain an EIN from the IRS, even if the LLC doesn’t have any employees. The IRS uses the EIN, which is also known as an employer tax ID, to identify your business for tax purposes.
Register for state and local taxes: Depending on the state in which your business is located and the nature of your business, you may need to register for state taxes (such as sales tax or employee withholding tax).
Obtain any necessary business licenses and permits: Depending on the type of business and where it’s located, you may need certain licenses and permits to operate legally. Check with your local and state government to see what’s required.
How long does it take to form an LLC?
The time it takes to form an LLC can vary depending on different factors, including the state in which you’re filing and the method you’re using to file. Here are some general timelines:
Name approval
Most states allow you to check the availability of a business name online and reserve it if it’s available. Typically, you can complete this step in a few days, but the time frame varies by state.Articles of organization filing
Once you have reserved a business name, you can file your articles of organization. If you submit these online, the approval could come within a few days to a week. If you mail the documents, it might take a few weeks. Some states offer expedited service for an additional fee.Operating agreement and EIN
Generally, you can create your operating agreement and obtain your EIN in a single day, but it’s important to put as much time as necessary into creating your operating agreement to ensure it meets your business’s specific needs.Additional permits and licenses
The time it takes to acquire additional permits and licenses for operating your business can vary widely depending on your industry, location, and the specific licenses you need. This process can take anywhere from a few days to several months.
If you submit your forms online—and there aren’t any issues or delays with your application—the process of forming an LLC can take a few weeks. However, if you need specific licenses or permits to operate your business, or if you mail in your forms, it can take anywhere from several weeks to a few months.
Keep in mind that this is a general guideline, and the process may vary by state and country. Check with your local Secretary of State office or a legal professional to get the most accurate information for your specific situation.