99.9% of all US businesses are small ones, and they’ve created 63% of all new jobs from 1995 to 2021. This means that you have a very good chance of success if you join the ranks, and you might be considering it. But do you need an LLC to start a business, or are there other options you should explore?
If you take a look at the small businesses that currently exist, the vast majority of them have “LLC” in their names, which means “limited liability company.” That gives you a clue as to what business structure you need to have.
Do you need an LLC to start a business though? Or are there other options available to you? Find out more by reading on.
Do You Need an LLC to Start a Business?
The simple answer here is no, you don’t need an LLC to start a business. This is good news for those who don’t want to bother with bureaucracy and paperwork, as it can sometimes be a pain.
However, it’s highly recommended that you form an LLC if you want to create your own business. The main advantage of doing so is that there’s personal liability protection; should your company face lawsuits or debt, you won’t have to worry about courts coming after your personal assets to settle these things.
Below are some other benefits you can get if you form an LLC for a small business.
There’s Structure
When forming an LLC, you’ll need to create an operating agreement. This will put in writing how you’ll divide up responsibilities between LLC owners. In addition, it’ll concretely describe how profits and losses are divided, as well as how disputes should be handled.
Having structure right from the beginning means you’ll know exactly how to handle things as they come up. As a result, there will be fewer interruptions in business operations.
You’ll Have a Proprietary Name
Your business name is essential for branding and marketing. Sure, it’s easier to start without filing documents with the state, but what if you want to later on? You may be sorely disappointed that your business name is already taken, meaning you’ll have to pick out a brand-new one.
When creating an LLC, you’ll have to perform a name check to ensure you have a unique name. If you use Business Anywhere’s business registration service, you can use our convenient name availability checker. Once you’ve gotten the green light that yours is untaken, you can proceed with ordering our services, which are fast and affordable.
Alternatives to LLCs
As we’ve said earlier, you don’t have to form an LLC to start a business. Yes, it comes with many benefits, but there are other business structures you can consider, all of which have their own advantages and disadvantages.
Here are your choices if you don’t want an LLC.
Sole Proprietorship
You can go ahead and start your business without choosing a business entity if you want to be a sole proprietor. This is pretty easy to do since you won’t have to file any documents with the state you’re in.
All you’ll have to do here is check if you have to obtain any business licenses or permits. If you want your business name to be different from your legal name, then you’ll have to either register a “doing business as” (DBA) or a fictitious name. Otherwise, you won’t have to pay for business formation, annual reporting, or registered agent services.
The downside of this option is that there’s no legal distinction between the owner and the business. You’re personally liable for all debts and obligations of the business.
General Partnership
This is essentially the same thing as a sole proprietorship, but instead of operating the business on your own, you’ll have partners who lend helping hands. Again, you won’t have to file anything with the state to get your business up and running.
In this partnership type, all partners have equal responsibility for the management of the business. They also have unlimited liability.
Limited Liability Partnership
A limited liability partnership is similar to a general partnership, but you’ll have to file documents with the state before you can start doing business.
This partnership type has two types of partners: general and limited. The former have unlimited liability while the latter have limited liability to their investment.
Corporation
A corporation is a separate legal entity owned by shareholders. It provides limited liability protection to its owners, meaning their personal assets are generally not at risk.
With a corporation, you’ll have to file paperwork too. In fact, they’re more complex to set up and maintain than sole proprietorships and partnerships. There are also more formalities to follow, such as holding shareholder meetings and keeping detailed corporate records.
Consider Forming an LLC
The answer to the question, “Do you need an LLC to start a business?” is “no.” However, it’s in your best interest to create one, as it comes with several benefits (namely, a separation of business and personal assets).
It’s true that you’l have to deal with extra work and spend more money to get one set up. However, the pros far outweigh the cons, and in the end, it may even end up saving you money. So overall, forming an LLC to start a business is a fantastic idea.
If you’re wondering how to get an LLC, then sign up with Business Anywhere today. We perform online business registration in all 50 states.
FAQs: Do You Need an LLC to Start a Business?
1. Do I need an LLC to start a business?
No, you don’t need an LLC to begin operating a business. Many people start as sole proprietors or general partnerships, which require little to no formal registration.
2. What are the main benefits of forming an LLC?
The key advantages of an LLC include:
- Limited liability protection — your personal assets are generally shielded from business liabilities and lawsuits.
- Tax flexibility — LLCs enjoy pass-through taxation by default, but you can elect corporate tax treatment if it benefits you.
- Credibility and professionalism — having “LLC” in your business name can make your company look more legitimate to clients, banks, and investors.
3. What are the downsides of running a business without an LLC?
Operating without an LLC offers simplicity and low cost, but:
- You face unlimited personal liability, meaning your personal assets could be at risk if the business is sued or goes into debt.
- Your business may appear less legitimate to customers, investors, or banks.
4. Is it possible to convert my sole proprietorship or partnership into an LLC later?
Yes. You can upgrade your business by filing Articles of Organization, appointing a registered agent, and completing your state’s paperwork and fees.
5. How much does it cost to form and maintain an LLC?
Costs vary by state, but typically:
- Formation (filing) fees range from around $35 to $500.
- Annual compliance fees, such as annual reports, often range from $50 to several hundred dollars depending on the state.
6. Do I absolutely need an operating agreement for my LLC?
Most states don’t require an operating agreement, but it is highly recommended — especially if you have business partners. It outlines how the LLC is run, profit distribution, and member responsibilities, and it also strengthens liability protection.
7. When should I seriously consider forming an LLC?
It’s smart to form an LLC if:
- Your business starts generating consistent profits.
- You face potential liability risks.
- You want to attract investors or partners.
- You want to boost your business’s credibility from day one.
