Single-member LLC vs multi-member LLC for taxes?

Single-member LLCs are taxed as sole proprietorships by default (everything on Schedule C of your personal return). Multi-member LLCs are taxed as partnerships by default. Either can elect S-corp or C-corp treatment.

Do I need an operating agreement if I am the only owner?

Most states do not require it. You should still write one - it establishes the LLC as a separate entity (helps preserve the liability shield), governs what happens if you add owners or die, and is often required to open business bank accounts.

Should I form my LLC in Delaware?

Probably not, unless you are raising VC funding or have multi-state operations. For most small businesses, your home state is cheaper and simpler. Delaware's advantages mostly apply to corporations and large LLCs.

How to start an LLC (step by step, by state)

When you need an LLC

An LLC (limited liability company) separates your business from your personal assets. If the business gets sued, your house and savings are (generally) protected. If you are operating any business that has even a small chance of being sued, an LLC is the cheapest meaningful liability shield.

You do not need an LLC for a hobby that earns a few hundred dollars a year. You do need one if you sign contracts, hire help, or produce a product or service that could plausibly harm someone.

The 6-step process

1. **Pick a name.** Must be unique in your state. Check via your secretary of state's business name database (free, online). Add "LLC" or "L.L.C." to the end as required by most states.

2. **Choose your registered agent.** A person or service at a physical address in your state who can receive legal mail. You can be your own (if your address is in-state and you are available during business hours), but most owners use a service ($50-150/year).

3. **File the articles of organization.** Online or by mail with your secretary of state. Filing fee varies wildly: California $70, Delaware $90, Florida $125, Texas $300, Massachusetts $500.

4. **Get an EIN from the IRS.** Free, online, takes 5 minutes at IRS.gov. Required for opening a business bank account and hiring employees.

5. **Draft an operating agreement.** Even single-member LLCs benefit. The agreement defines ownership, distributions, decision-making, and what happens when a member leaves. Most states do not require filing the operating agreement - just signing it.

6. **Open a business bank account.** With your articles of organization, EIN, and operating agreement. NEVER mix personal and business funds - it is the #1 way to lose your liability shield.

Filing fees by state (2026)

Initial filing fees vary 10x by state. Some states also charge annual reports / franchise taxes:

**Cheap states:** Kentucky $40, Mississippi $50, Arkansas $50, New Mexico $50.

**Mid-range:** California $70 (but with annual $800 franchise tax that crushes small LLCs), Delaware $90 ($300 annual franchise tax), Florida $125.

**Expensive:** Tennessee $300, Texas $300, Massachusetts $500, California with annual taxes can run $900+/year.

Pick the state where you actually operate. Filing in Delaware "for tax benefits" usually does not work for small operations - you still have to register as a foreign LLC in your home state, doubling the cost.

Operating agreement basics

The operating agreement is the LLC's internal contract. Cover these in writing:

**Ownership.** Who owns what percentage? Initial capital contributions.

**Voting and decisions.** Unanimous? Majority? By percentage of ownership?

**Distributions.** When does the LLC pay out profits? In what proportion?

**Management structure.** Member-managed (everyone) or manager-managed (one designated manager)?

**Buyout terms.** What happens if a member wants to leave, gets divorced, dies, or becomes incapacitated? Valuation method?

**Tax treatment.** Will you elect to be taxed as a partnership (default), S-corporation, or C-corporation?

Skip the templates - draft with Bella

Bella drafts state-compliant articles of organization and operating agreements from a 5-minute interview. Free for the first three drafts; $19/mo for unlimited on Personal Pro. For LLCs with multiple members or unusual tax situations, Find Counsel connects you with a small-firm attorney for a fixed-fee formation.