Why Start an LLC? (Top Reasons to Create One in 2025)

Starting an LLC is a strategic choice for entrepreneurs seeking the right balance between operational flexibility and legal protection.

Drawing from my experience as a business consultant, I've seen how this structure combines the liability protection of a corporation with the ease of a sole proprietorship.

I will provide an in-depth guide on how to start an LLC, and highlight essential information on the steps you need in this process.

Quick Summary

• Forming an LLC provides entrepreneurs with a balance between operational flexibility and legal protection, combining the liability protection of a corporation with the simplicity of a sole proprietorship.
• The popularity of LLCs across various industries, including real estate, professional services, and retail, highlights their versatility and appeal to a wide range of business ventures.
• The number of LLCs in the U.S. increased dramatically from about 200,000 in 1993 to over 2.4 million in 2018, with LLCs accounting for approximately 70.6% of all partnership returns filed in 2020​​​​, according to data from the U.S. Internal Revenue Service (IRS).
• Forming an LLC, in my opinion, is advantageous for entrepreneurs seeking legal protection without the complexity of a full corporation.

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What Is An LLC?

A Limited Liability Company is a form of business organization permitted by state legislation.

The LLC was established to limit the owners' personal liability (similar to a corporation), as well as allow the company to be taxed like a partnership.

Ownership of an LLC is known as membership (comparable to shareholders in a corporation).

By creating an LLC for your firm, you may do the following:

• Secure your money, automobile, and home.
• Increase your level of peace of mind.
• To safeguard your privacy.
• Allow for a higher profit margin.
• Allow for greater development speed.
• Raise your reputation in the eyes of others.

LLC Advantages

There are many reasons to form an LLC. Here are some of the key advantages:

• Limited Liability Protection - As an owner of an LLC, you have limited personal liability for the debts and actions of the company, meaning your personal assets are protected. This is similar to the protection of the personal assets offered by a corporation.
• Tax Flexibility - An LLC can be taxed as a sole proprietorship, partnership, or corporation.
• Flexible Ownership - An LLC can have any number of members (owners).
• Easy to Form and Maintain - In most states, it's relatively easy to form and maintain an LLC.

If you're thinking about opening an LLC, be sure to consult with a qualified business attorney to discuss the pros and cons of this business structure.

An attorney can also help you draft your LLC operating agreement, which will govern the operations of your company.

Read More: What is an LLC

Is an LLC Right for You? A Self-Assessment

Before diving into formation steps, take this quick assessment to determine if an LLC is the right structure for your specific situation:

Business Characteristic	LLC Suitability
Personal liability concerns	✓ High benefit
Need for tax flexibility	✓ High benefit
Multiple owners	✓ High benefit
Plans to raise venture capital	✗ May not be ideal
Professional service provider (doctor, lawyer)	⚠️ Check state rules
Expecting losses in early years	⚠️ Consult tax advisor

In some cases, you may be able to form an LLC or a Limited Liability Limited Partnership (LLLP), which offers some limited liability protection to the general partners; or a Professional Association (PA), which is only available to people who work in specific vocations.

According to data from the U.S. Small Business Administration (SBA), approximately 33% of new businesses opt for LLC formation annually.

Similar Articles:

• LLC vs C Corp
• LLC vs S Corp

"Each year presents fresh opportunities for business growth, making it an ideal moment for small business owners to contemplate establishing a Limited Liability Company (LLC), the favored business structure among entrepreneurs due to its myriad benefits, including safeguarding personal assets and potential tax advantages."

- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions

Forming an LLC

There are seven basic procedures for creating an LLC, although the specifics vary from state to state:

Step 1: Choose the Type of Your LLC

Choosing the type of your LLC is crucial, as it determines your management structure and tax treatment.

Options include a single-member LLC, ideal for solo entrepreneurs, and multi-member LLCs, suitable for partnerships.

Some states offer specialized forms like professional LLCs for licensed professions. Consider your business needs and consult with a legal advisor for the best fit.

Step 2: Choose A Name For Your LLC

Your LLC's name must be distinguishable from the names of other business entities already on file with the state. Most states require that your LLC's name include either "LLC," "L.L.C.," or "Limited Liability Company."

If you're not ready to form your LLC yet but want to secure your name, most states allow reservation for a fee:

State	Reservation Fee	Reservation Period
Delaware	$75	120 days
New York	$20	60 days
Texas	$40	120 days
Florida	$25	120 days
California	$10	60 days

From My Consulting Experience: One client nearly lost their business name after spending $5,000 on branding because they didn't conduct a proper name search. Always verify availability before investing in marketing materials.

Step 3: Choose a Registered Agent

Every LLC must have a registered agent. A registered agent is an individual or business entity that agrees to receive legal papers on behalf of your LLC.

Learn how to choose a registered agent for an LLC.

Step 4: File the Articles of Organization

The next step is to file the articles of organization with the state. The articles of organization, also known as the certificate of formation or charter, are a document that contains information about your LLC, such as its name, registered agent, and purpose.

Step 5: Create an Operating Agreement

An LLC operating agreement is a document that outlines the rules and regulations of your LLC. It is not required by law, but it is highly recommended.

An operating agreement can help prevent disputes among LLC owners and members and can make it easier to run your LLC.

Step 6: Get an Employer Identification Number (EIN)

The final step is to obtain an employer identification number (EIN) from the IRS [1]. An EIN is a nine-digit number that is used to identify your LLC for tax purposes.

You will need an EIN if you have employees or if you plan to open a bank account in the name of your LLC.

You can also save time and effort by hiring ZenBusiness to take over and launch the business for you.

Steps to Take After Forming an LLC

There are a few things to keep in mind after forming an LLC.

Open a Business Bank Account

It's a good idea to open a business bank account, even if you're the only one who will be using it. This will help you keep your personal and business finances separate.

While you're not legally required to have a business bank account, it can save you a lot of headaches down the road.

When applying for a business loan or line of credit, lenders will often require that you have a business bank account.

A business bank account can also help you build business credit fast. Business credit is separate from personal credit and can be used to get loans, lines of credit, and credit cards in the name of your business.

File Your Annual Report

To maintain good standing and avoid unjustified fines and penalties, it is critical to keep track of your state's filing deadlines. In most cases, an annual report must be filed. Some states also impose an annual charge.

Choosing Your Tax Structure

Both single-member LLCs and multi-member LLCs are subjected to pass-through taxation. The company's revenue goes through to the owner's individual tax return via pass-through taxation.

An LLC's profits are only taxed at the individual level, as opposed to a corporation's business income, which is taxed once at the company level and again at the personal level.

"Double taxation" is a term used to describe this process.

Sole proprietorships are also subject to pass-through taxation, like LLCs. There are two key distinctions between operating a business as a sole proprietorship vs an LLC:

• Sole proprietors are not covered by personal liability protection.
• S corporations can't be formed as sole proprietors.

A business may convert to an S corporation at any time, which is the best choice for small businesses that are still in their infancy. As an LLC grows, it may choose to be taxed as an S corporation.

The main S corporation tax advantage is that company owners no longer have to pay self-employment tax. This might result in tax savings under the right conditions.

The IRS requires that all LLCs submit an income statement to it each year through:

• Form 1065 Partnership Return (most multi-member LLCs use this form)
• Form 1040 Schedule C (most single-member LLCs use this form)

FAQs

References:

1. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online