LLC formation questions: facts, examples and context

The questions people ask about forming an LLC divide cleanly into three piles, and the pile a question lands in tells you what kind of answer is possible. Some are answered by a record. Some are answered by a professional looking at your facts. Some have no answer at all and are really a request for reassurance.

Sorting them is most of the work. What follows is the sort, with the honest answer to each type, including the ones where the honest answer is that a page cannot tell you.

What to take away

• A question about a fee, a deadline, a form or a state's own rule is a record question. The state filing office or the IRS answers it, today, in its own words.
• A question about whether an LLC is right for you is a judgment question, and it belongs to a lawyer or an accountant with your facts in front of them.
• A question about whether you will regret it is neither, and no source answers it.
• Most disagreement online is people answering a record question from memory of a different state.

Record questions

These have a definite answer that changes over time and by place. Do not accept them from anyone but the office that sets them.

• What does it cost to file here, and what does the recurring report cost?
• How long does the office take, and is there a faster option?
• Which form is used, and what does it ask for?
• Is this name available, and what does availability mean in this state?
• Which details become public once filed?
• What is the recurring report called here, and when is it due?

Every one of those is a question of record. The office that answers it is your state's business filing division, reached through the directory the IRS maintains for state government sites. Nothing on a general page, including this one, is a substitute, and an answer that was right last year in a neighboring state is not an answer.

Judgment questions

These depend on facts nobody but you and your advisers can see.

• Should I be an LLC at all, or something else?
• Should there be one member or several, and in what proportions?
• Which tax classification suits how this business actually earns?
• Do I need a lawyer to write the operating agreement, or will a template do?
• Should I form in my home state or somewhere else?

Each has a real answer once someone knows your owners, your exposures, your money and your plans. Without those it has no answer, which is why the confident version online is worth so little. The comparison of options behind the first of these is laid out in the structure comparison; it narrows the question, it does not settle it.

Questions with no answer

• Will I regret this?
• Is this the moment?
• What do most businesses like mine do?

The third looks answerable and is not, because "like mine" is doing work you cannot inspect. Two businesses that look identical from outside can differ on ownership, exposure and tax position, which is exactly what decides the answer.

The questions that come up most

Does forming an LLC protect my personal assets?

It creates a separation. Whether the separation holds in a given dispute depends on conduct, on maintenance, and on what you have personally signed. A personal guarantee survives any structure. So does your own conduct. This is the single most over-promised thing in the subject, and the failure modes are cataloged in twelve worked examples.

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

The state may not require one. Banks, lenders and buyers often want to see one anyway, and it is the document that says what happens if you are unavailable. Writing it costs an afternoon and answers questions your family would otherwise have to guess at.

Do I need a federal identifier?

Whether your situation requires one is a question with structural answers and boundary cases, and it is set out in the piece on what the number does. What is not in doubt: the IRS issues it, at no charge, and nobody else issues it at all.

Can I form the LLC myself?

The filing itself is designed to be done by the person forming the business, and every state office publishes its own instructions. The SBA's general description of registering a business sets out the shape of it. What you may still want a professional for is the decision before the filing and the agreement after it.

What happens if I do nothing?

You continue as whatever you already are, usually a sole proprietor if you are working alone, with the default rules that come with it. That is a real option and sometimes the right one. What it is not is a decision you have made, and the difference shows up when something goes wrong.

Does the state check any of this?

The office checks that the form is complete and the name is available under its rules. It does not check whether the structure suits you, whether the agreement is sensible, or whether you understood what you filed.

How to ask better

Bring the state, the number of owners and the nature of the work to any question you ask. Those three facts change the answer more than anything else, and a question without them attracts answers from people imagining a different business. Where the answer will need to be updated later, note who told you and when, because the follow-up belongs in the record of changes after formation.

Common questions

Why will nobody give me a straight answer about my state's fees?

Because they change, and a wrong figure is worse than none. The office publishes the current one and it takes a minute to find.

Is it worth paying someone to answer these?

For the judgment questions, yes, and the fee usually buys less time than people expect because most of the meeting is fact gathering you can do first. For the record questions, no. You are paying someone to read a page you can read.

Can I change my mind later?

Generally yes, in more than one direction, and each route out has its own cost and its own tax consequences. Ask what the exit looks like before you choose the entrance, and ask it of the accountant as well as the lawyer.

What should I not ask a filing service?

Anything in the judgment pile. A service that answers those is giving advice it is usually not licensed to give, and its own terms will normally say so.