Do You Actually Need an LLC? A Plain-English Guide for Solo Founders

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 (here's exactly what you can and can't do without an LLC). 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. Our full comparison of the major formation services covers who each one suits and where the "free" offers make their money.

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.

Frequently asked questions

Is it worth it to start an LLC?

It's worth it when the business has something to protect: real liability exposure, meaningful revenue, clients whose contracts require an entity, or a co-founder. Before any of those, the ~$100–500 cost plus annual fees mostly buys paperwork — a sole proprietorship with a separate bank account is a respectable start, and upgrading later takes about an hour.

How much does it cost to form an LLC?

The mandatory cost is your state's filing fee, roughly $50–500 depending on the state. Optional extras: a registered agent service (~$100–150/year) and a formation service ($0–300). Budget also for ongoing annual report fees — and note outliers like California's $800 annual franchise tax.

Do I need an LLC to start freelancing or selling online?

No. You can operate legally as a sole proprietor from day one in the US — income is reported on your personal return. An LLC becomes worth it when there's real liability exposure, meaningful revenue, a co-founder, or clients whose contracts require an entity.

Does an LLC save you money on taxes?

By default, no — a single-member LLC is taxed identically to a sole proprietorship. Tax advantages only appear later, at higher profits, via elections like S-corp status, which bring their own payroll and admin costs. Forming an LLC purely as a "tax hack" is a myth sold by people with formation packages to sell.

Should I form my LLC in Delaware or Wyoming?

Almost certainly not, as a solo founder. You'll still have to register (and pay) in the state where you actually live and operate, so the famous-state route usually means double fees for no benefit. Delaware's advantages are built for venture-backed corporations, not one-person businesses.