Do You Actually Need an LLC? A Plain-English Guide for Solo Founders
Everyone on the internet tells you to form an LLC on day one — often while holding an affiliate link. Here's when it genuinely matters, when it can wait, and how not to overpay.
The LLC is the most over-sold product in the solopreneur economy. It's also, at the right moment, genuinely worth having. The trick is knowing which side of that line you're on.
What an LLC actually does
A Limited Liability Company does one headline thing: it separates your business's debts and legal problems from your personal assets. If the business gets sued or can't pay its bills, your house and savings are (with important exceptions) not on the table. By default it changes almost nothing about your taxes — a single-member LLC is taxed exactly like a sole proprietorship unless you elect otherwise.
What it doesn't do: magically reduce your taxes, make you look bigger than you are, or protect you from your own professional mistakes in many cases. Anyone selling it as a tax hack is selling.
When you genuinely want one
- Real liability exposure — clients can claim damages, you handle their data or money, you sell physical products, people set foot on your premises.
- Meaningful revenue — once the business clears hobby scale, the ~£/$100–500 all-in cost is cheap insurance.
- Contracts and clients that require it — many B2B clients simply won't onboard a sole proprietor.
- A co-founder — shared ownership without an entity and an operating agreement is a friendship time-bomb.
When it can wait
If you're pre-revenue, testing an idea, selling a low-risk digital product at small scale — a sole proprietorship plus a separate bank account is a perfectly respectable starting point. Forming an entity you don't need yet mostly buys you annual report fees and paperwork. Start simple; upgrade when one of the triggers above appears.
The honest cost breakdown
- State filing fee: roughly $50–500 depending on state (this is the only mandatory cost).
- Registered agent: $0 if you're your own, ~$100–150/year for a service (worth it if you value privacy or move around).
- Formation service: $0–300 on top, depending on tier.
- Ongoing: annual report fees and, in some states (looking at you, California's $800 franchise tax), real money every year.
DIY vs formation services
Filing yourself on your state's website is genuinely doable in an hour — the form is simpler than most people expect. A formation service (Northwest, ZenBusiness, and the rest of the crowd) earns its fee when you want a registered agent bundled in, hand-holding on the follow-up steps (EIN, operating agreement, compliance calendar), or you're a non-US founder navigating it remotely. We'll publish a hands-on comparison of the major services soon.
One myth worth killing: the Delaware/Wyoming thing
For a solo founder, forming in a "famous" state you don't live in usually means paying two states instead of one — you'll still have to register where you actually operate. Delaware is for venture-backed startups. Form where you live; move later if the situation genuinely changes.
Form an LLC when the business is real enough to protect — not to make it feel real.
Next in this series: best business bank accounts for solo founders, and invoicing tools that get you paid faster. Join the Monday Briefing to catch them.