There's no shortage of advice out there when it comes to starting a business. But when it comes to forming an LLC, myths and half-truths can steer entrepreneurs in the wrong direction. Whether it's misinformation passed along by a well-meaning friend or outdated content online, these misconceptions can cloud your judgment and delay smart decisions.
Let's clear the air. In this article, we're tackling the most common myths about Limited Liability Companies (LLCs)—and replacing them with the facts you need to make confident, informed choices for your business.
Myth #1: You Don't Need an LLC Unless You're Making a Lot of Money
The reality: Income level has nothing to do with whether you need the protection an LLC offers. Even if you're just getting started—or making only a few thousand dollars a year—a single legal issue could threaten your personal assets.
If your business interacts with clients, sells products, offers services, or creates content, you're at risk. An LLC can protect your personal savings, car, or home from lawsuits or business debts—even at the side hustle stage.
Myth #2: LLCs Protect You From All Legal or Financial Trouble
The reality: LLCs offer *limited* liability—not a magic shield. You're protected from debts and lawsuits related to your business, but only if you follow the rules.
Liability protection can be lost if:
- You mix personal and business finances
- You commit fraud or personally guarantee a loan
- You fail to keep your LLC in good standing with the state
So yes, an LLC is powerful—but it's not invincible.
Myth #3: Forming an LLC Is Expensive and Complicated
The reality: In most states, forming an LLC is straightforward and budget-friendly. Filing fees range from $40 to $500, and the process usually takes less than an hour when done online.
What trips people up is the upsell. Many third-party services charge hundreds of dollars for things you can do yourself for free or at minimal cost, such as applying for an EIN or drafting a basic operating agreement.
You don't need a lawyer or an expensive service to form an LLC—just the right information and a little time.
Myth #4: You Can't Form an LLC by Yourself
The reality: Absolutely false. You can form a single-member LLC all on your own. In fact, it's one of the most common structures for freelancers, consultants, and solo entrepreneurs.
You don't need employees, a partner, or a board of directors. A single-member LLC provides the same limited liability and tax flexibility as multi-member versions—without the complexity.
Myth #5: An LLC Will Automatically Save You on Taxes
The reality: An LLC gives you options for how your business is taxed—but it doesn't automatically reduce your tax bill. By default, LLCs are “pass-through entities,†meaning profits are reported on your personal return and taxed at your individual rate.
If you want to save on self-employment taxes, you may need to elect S Corporation status with the IRS—something that requires planning and paperwork. Without making that election, your tax situation as an LLC may not look much different than it did as a sole proprietor.
Myth #6: You Can't Form an LLC if You're Not a U.S. Citizen
The reality: Non-U.S. citizens and even non-residents can form LLCs in most states. You don't need a Social Security Number or Green Card to start a business entity in the U.S.
However, you will need:
- A U.S.-based registered agent
- An EIN from the IRS (which can be obtained without a Social Security Number in many cases)
- Compliance with state and federal laws, especially if you're opening a U.S. bank account or operating physically in the country
It may take a few extra steps, but plenty of international entrepreneurs have launched successful LLCs in the U.S.
Myth #7: You Only Need an LLC in Delaware or Wyoming
The reality: These states are popular with large corporations for specific legal and tax reasons—but for small businesses, your home state is usually the best place to form your LLC.
If you form your LLC in Delaware or Wyoming but operate your business in, say, New York or Texas, you'll still need to register as a “foreign LLC†in your home state—and pay fees in both places.
Bottom line: Unless you're raising venture capital or dealing with complex holdings, forming your LLC in your actual state of business is simpler and more cost-effective.
Myth #8: You Can Use Any Name You Want for Your LLC
The reality: LLC names must meet specific rules. They must:
- Be distinguishable from existing businesses in your state
- Include “LLC,†“L.L.C.,†or “Limited Liability Company†at the end
- Avoid restricted terms like “bank,†“insurance,†or “university†unless authorized
You also need to check for trademarks—just because your state allows a name doesn't mean it's available federally. Naming your business is about legal compliance and branding, so do your homework first.
Myth #9: Once You Form an LLC, You're Done
The reality: Forming an LLC is just the beginning. To keep it in good standing, you need to complete annual or biennial tasks such as:
- Filing an annual report
- Paying state fees or franchise taxes
- Maintaining a registered agent
- Keeping business and personal finances separate
Skipping any of these could result in late fees, loss of liability protection, or even administrative dissolution. Think of it like renewing your driver's license—you need to stay current to stay legal.
Myth #10: LLCs Aren't Worth It for Small or Online Businesses
The reality: LLCs are especially beneficial for small and online businesses. Whether you're a freelance writer, Etsy seller, YouTube creator, or online coach, forming an LLC gives you legitimacy, protects your personal assets, and helps you separate business from personal income.
Online businesses are still subject to contracts, disputes, chargebacks, and liability. The digital nature of your business doesn't reduce the legal risks—it just changes where they might come from.
Replace Rumors With Real Knowledge
Starting a business is exciting—but it's easy to get tripped up by myths that sound true but aren't. The truth is, an LLC is one of the most flexible, powerful business structures available—whether you're running a side gig or scaling a startup.
By understanding what an LLC really does—and doesn't do—you can make better decisions, avoid costly errors, and build your business on a solid legal foundation. Don't let misinformation hold you back. When it comes to your business, facts aren't just helpful—they're essential.