Business Finance

What Is an LLC?

Apr 26, 2021 • 3 min read
Limited Liability Company operation agreement
Table of Contents

      When opening a business, you have a lot of choices to make—including the structure of your business or the business entity. One of the most common types of businesses is known as an LLC, or limited liability company. In addition to being one of the easiest entities to form and maintain, it also offers legal and financial protection to its owners. 

      Keep reading to understand LLCs and why they are so popular. 

      What Does an LLC Mean?

      A limited liability company works to protect business owners who want to separate their personal and professional assets. For example, if a sole proprietor gets sued, the lawsuit could cover that person’s income, home, car, and other personal assets. 

      However, an LLC limits the liability to just the business assets. These assets include company profits, equipment, and inventory but do not extend to any personal assets outside the business.

      An LLC is often used by business owners to protect themselves personally when they go into business. 

      How Can You Start an LLC?

      To start an LLC, look up your state Chamber of Commerce and find the appropriate paperwork to complete an application. You will need to register your company under a name that is not currently used in that state. The application can be completed online in many districts and requires an application fee.  

      What Does an LLC Cost?

      The cost to form an LLC varies by state. Some states have affordable fees (Colorado charges $50 to get started), while others are more expensive (Massachusetts charges $500). 

      Along with a startup fee, you will need to pay an annual fee to maintain the designation. These fees also vary widely depending on where you live. In Missouri, there is no annual fee, though business owners still need to submit annual reports. In Maryland, business owners need to pay $300 annually.

      Look up your filing fees before you decide to become an LLC so you can budget for the costs. 

      What Is an Annual Report?

      Most states require LLC owners to file annual reports that detail the operations of the business over the course of the year. The annual report covers information like the names and addresses of owners, the purpose of your business, and the number of shares of stock. 

      These annual reports are typically due around the anniversary date of formation. You can often find annual report templates online. 

      When Should You Form an LLC?

      While you can form an LLC at any time throughout the year, you may want to file at the start of the new year in January for easy tax purposes. That way, all of your future income is covered by the LLC. 

      You don’t have to file your paperwork in January to form your LLC. Some states offer a “delayed effective date” up to 90 days out. This means you can work through your paperwork in October or November for an LLC launch date of January 1. 

      One of the key traits of an LLC is the separation between professional and personal accounts. If you plan to start a company, make sure you have a foundation of good bookkeeping to easily report your income and expenses. Use an app like Lendio’s software, which offers free tools for small business owners. This can make establishing a business easier.

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      About the author
      Derek Miller

      Derek Miller is the CMO of Smack Apparel, the content guru at, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy,, and StartupCamp.

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