LLC Formation in the United States

Scope & Method

This entry explains the legal structure of a limited liability company (LLC) as it exists under US state law, the general formation process, and the federal tax classification framework. It gives particular attention to considerations relevant to entrepreneurs based outside the United States — including state selection, EIN application procedures, and cross-border tax implications.

This entry does not cover S-Corp election requirements in detail, employment law obligations for LLCs with employees, or visa and immigration pathways. The relationship between LLC formation and immigration status is addressed in a separate entry.

Key Takeaways

• An LLC is a state-level entity that provides limited liability protection to its owners (members) while offering flexibility in management structure and tax treatment.
• LLCs are formed under state law, not federal law. Each state has its own LLC statute, and the governing framework varies — particularly regarding operating agreement requirements, annual reporting, and franchise taxes.
• For federal tax purposes, an LLC is classified under the "check-the-box" regulations (26 C.F.R. § 301.7701-3). A single-member LLC defaults to a disregarded entity; a multi-member LLC defaults to a partnership. Either may elect corporate treatment.
• LLC formation does not confer any immigration benefit or visa eligibility. These are entirely separate legal domains.
• Non-US residents can form LLCs in any US state. Delaware and Wyoming are commonly chosen for their privacy protections, low fees, and well-developed LLC statutes.

Legal Structure of an LLC

A limited liability company is a hybrid business entity that combines the limited liability protection of a corporation with the operational flexibility and pass-through taxation of a partnership. The LLC form was first adopted by Wyoming in 1977 and has since been enacted in all 50 states and the District of Columbia.

The defining characteristic of an LLC is that its members are not personally liable for the debts and obligations of the company, absent fraud, personal guarantees, or "piercing the corporate veil" circumstances. This liability shield operates at the state level — each state's LLC act establishes the conditions under which the shield may be lost.

The Revised Uniform Limited Liability Company Act (RULLCA), promulgated by the Uniform Law Commission, provides a model statutory framework adopted in over 25 jurisdictions. However, high-formation-volume states like Delaware and Wyoming maintain their own distinctive LLC statutes.

State Selection

Because LLCs are creatures of state law, the choice of formation state determines the governing statutory framework, annual compliance obligations, and associated costs. For non-US residents who do not conduct physical operations in any particular US state, this choice is relatively unconstrained.

Delaware

Delaware's LLC Act (6 Del. C. § 18-101 et seq.) is the most extensively litigated and judicially interpreted LLC statute in the United States. The Delaware Court of Chancery, a specialized equity court, provides a well-developed body of case law on LLC governance disputes. Delaware is commonly chosen by venture-backed startups and entities anticipating complex multi-member arrangements. The state imposes an annual franchise tax of $300 but does not tax out-of-state income.

Wyoming

Wyoming (Wyo. Stat. § 17-29-101 et seq.) was the first state to adopt LLC legislation and remains popular among international entrepreneurs for its low costs, strong privacy protections (no requirement to disclose member names in public filings), and absence of state income tax. Annual report fees are modest compared to other formation-friendly states.

Home State Considerations

Entrepreneurs residing in the United States generally benefit from forming in their state of residence. Forming in another state while conducting business locally typically triggers "foreign qualification" requirements — meaning the LLC must register and pay fees in both the formation state and the operating state, increasing compliance burden without meaningful legal advantage.

Formation Process

While the specifics vary by state, LLC formation follows a common sequence in commercial practice.

Name selection. The entity name must be distinguishable from existing entities registered in the formation state and must include a designation such as "LLC" or "Limited Liability Company." Most states provide an online name availability search.

Registered agent. Every LLC must designate a registered agent — a person or entity with a physical address in the formation state authorized to receive service of process and official correspondence. For non-US residents, commercial registered agent services fulfill this requirement.

Articles of Organization. The formation document — typically called Articles of Organization or Certificate of Formation — is filed with the state's Secretary of State or equivalent office. Filing fees range from approximately $50 (Kentucky) to $500 (Massachusetts), with most states in the $100–$200 range.

Operating Agreement. An Operating Agreement is the internal governance document that defines member rights, profit allocation, management structure, and dissolution procedures. While not all states require a written Operating Agreement, it is considered essential in practice — particularly for multi-member LLCs and for establishing the formalities that support the liability shield.

EIN application. An Employer Identification Number (EIN) is a federal tax identification number issued by the IRS. It is required for opening US bank accounts, filing tax returns, and hiring employees. US residents can apply online; non-US residents without an SSN or ITIN must apply by fax or mail using IRS Form SS-4.

Tax Classification

For federal tax purposes, an LLC is not a separate tax classification. Instead, the IRS classifies LLCs under the "check-the-box" regulations (26 C.F.R. §§ 301.7701-1 through 301.7701-3), which allow eligible entities to elect their tax treatment.

A single-member LLC defaults to treatment as a disregarded entity — its income and expenses are reported on the owner's personal tax return. A multi-member LLC defaults to partnership treatment. Either type may elect to be taxed as a C corporation, and a domestic LLC taxed as a C corporation may further elect S corporation status if it meets the eligibility requirements (which exclude non-resident alien shareholders).

For non-US residents, the tax implications are substantially more complex. US-source income earned through an LLC may be subject to withholding requirements, and the interaction between US tax obligations and the owner's home country tax system — including applicable tax treaties — requires professional analysis. The common belief that a Delaware LLC eliminates all tax obligations is incorrect: Delaware imposes no state income tax on out-of-state earnings, but federal obligations and home-country obligations remain.

Risk Allocation and Common Failure Modes

Conflating LLC formation with immigration benefit. Forming an LLC does not grant, support, or improve any visa application or immigration status. Business formation and immigration are governed by entirely separate bodies of law. This misconception is widespread among non-US entrepreneurs and can lead to costly missteps.

Assuming Delaware eliminates tax obligations. While Delaware does not impose state income tax on earnings from out-of-state operations, federal tax obligations (including filing requirements and potential withholding on US-source income) persist. Additionally, an LLC owner residing in Turkey remains subject to Turkish tax law on worldwide income, with foreign tax credits potentially applicable.

Operating without an Operating Agreement. In the absence of a written Operating Agreement, the LLC is governed by the default rules of the formation state's LLC statute. These defaults may not align with the members' actual intentions — particularly regarding profit distribution, transfer restrictions, and dissolution triggers. Courts have also considered the absence of corporate formalities when evaluating veil-piercing claims.

Difficulty opening US bank accounts. Many traditional US banks require in-person identity verification for account opening, which presents a practical barrier for non-US residents. While some banks and fintech providers offer remote onboarding for foreign-owned LLCs, the documentary requirements (EIN confirmation, Articles of Organization, Operating Agreement, and sometimes personal identification documents authenticated by a US embassy) can be substantial.