Last updated: September 2026
When I set up Drakov Industries, the paperwork felt more intimidating than it really was. I didn't need an expensive package, just a clear picture of which structure fit my business and what my state required.
That's what this guide gives you. We'll cover the main business structures, what forming an LLC or corporation costs, and when paying a formation service makes sense. We'll also cover a few veteran-specific issues, like certification and state fee waivers, that most generic guides skip.
Start Here: Do You Need to Form Anything Yet?
You don't have to form an LLC or corporation to start a business. If you simply start selling a service under your own name, you're a sole proprietor by default. That's the simplest setup, with no state formation filing, but it offers no separation between your personal and business assets. If the business is sued or can't pay its debts, your personal savings could be at risk.
Many veterans start as sole proprietors to test an idea. Then they form an LLC once money starts coming in or the risk grows. Either path is fine. What matters is making the choice on purpose.
LLC vs. Corporation: Which Fits Your Business?
The SBA's guide to business structures walks through every option. For most veteran-owned small businesses, the choice comes down to four.
| Structure | Liability protection | How it's taxed by default | Paperwork | Often a good fit for |
|---|---|---|---|---|
| Sole proprietorship | None | Profit on your personal return | Lowest | Testing an idea; very low-risk work |
| LLC | Yes | Pass-through (single-member: personal return; multi-member: partnership return) | Low to moderate | Most service and small product businesses |
| LLC taxed as an S corporation | Yes | Pass-through; owner takes a salary plus distributions | Moderate (payroll required) | Profitable businesses where salary planning may save on self-employment tax |
| C corporation | Yes | Corporation pays its own tax; owners taxed again on dividends | Highest | Businesses planning to raise outside investment |
LLCs are the most common choice for small businesses because they protect your personal assets with less paperwork than a corporation. By default, the IRS treats a single-member LLC's profit as your personal income.
S corporation status isn't a separate type of company. It's a tax election that an LLC or corporation can make. Once your business earns a steady profit, it can sometimes lower your self-employment taxes, because you pay yourself a reasonable salary and take the rest as distributions. It also adds payroll and extra tax filings, so talk to a tax professional before you elect it.
C corporations make sense mainly if you plan to raise money from investors or eventually sell shares. The trade-off is "double taxation": the corporation pays tax on its profits, and you pay tax again on any dividends.
The old version of this post suggested corporations "may offer slightly stronger protection" than LLCs. In practice, both protect you well as long as you keep business and personal money separate and follow your state's rules. The protection comes from how you run the business, not just the paperwork.
A Veteran-Specific Point: Ownership and Control
If you plan to pursue veteran-owned contracting set-asides or state certification, set up your ownership correctly from day one. Federal SDVOSB and VOSB certification through SBA's VetCert program and many state programs require the business to be at least 51% owned and controlled by one or more veterans. Washington's state certification uses the same 51% ownership rule.
That affects your operating agreement. If a non-veteran spouse or partner owns half the business, or the agreement gives someone else veto power over key decisions, you may not qualify. My veteran business plan guide covers certification in more detail. The short version: decide who owns and controls what before you file, not after.
Do You Need a Formation Service?
A formation service fills out and files your state paperwork for you, often bundled with extras like a registered agent. You can almost always do it yourself on your state's website. Whether a service is worth it depends on your time, your comfort with forms, and which extras you actually need.
Here's what formation services typically sell and whether you need to pay for each piece:
State filing. Every state charges its own fee to form an LLC or corporation, and you pay it whether or not you use a service. A service only adds convenience. Some advertise a "$0" package, which means $0 for their work plus the state fee.
EIN (Employer Identification Number). This is your business's federal tax ID. The IRS issues EINs for free online, usually in minutes. The IRS says plainly that you never have to pay for one. Skip any package that charges for it.
Registered agent. Every LLC or corporation needs a registered agent: a person or company with a physical address in your state who can receive legal papers. You can be your own if you have an in-state address and are usually available during business hours. A paid service keeps your home address off public records and makes sure you never miss a lawsuit notice. For home-based businesses, that privacy can be worth the yearly fee.
Operating agreement or bylaws. Some states don't require you to file an operating agreement, but you should still have one. It's the document that proves who owns and controls the business. For veteran certification, it's one of the first things reviewers look at. Service templates can work for a simple single-member LLC. If you have partners, investors, or certification plans, have an attorney review it.
Beneficial ownership (BOI) reports. Some services still sell this. You don't need it. FinCEN permanently removed the requirement for U.S. companies and U.S. persons to file BOI reports under the Corporate Transparency Act, with the final rule taking effect August 14, 2026. Only certain foreign companies registered to do business in the U.S. still have to file.
"Compliance" subscriptions. These remind you about annual reports and deadlines, usually for a yearly fee after the first year. A free calendar reminder does the same job for most small businesses.
Well-known services include LegalZoom, ZenBusiness, Bizee (formerly Incfile), and Northwest Registered Agent. Prices and packages change often, so compare the total first-year cost, including the state fee, registered agent, and any auto-renewing add-ons. Some companies offer military or veteran discounts, but I couldn't confirm a current program for any of them, so ask before you buy.
What Formation Actually Costs (Washington Example)
Costs vary a lot by state, so check your own Secretary of State's fee schedule. Here's what a single-member LLC costs in Washington, where I'm based.
| Item | Approximate cost | Paid to | Notes |
|---|---|---|---|
| Certificate of Formation (online) | $200 | WA Secretary of State | Includes the Initial Report when filed together |
| EIN | $0 | IRS | Never pay for this |
| Business license application | $50 | WA Department of Revenue | City endorsements may add fees |
| Registered agent | $0 to ~$125+ per year | You or a service | $0 if you serve as your own |
| Annual report | ~$60 per year | WA Secretary of State | Missing it can lead to dissolution |
| Formation service fee (optional) | $0 to several hundred dollars | Private company | Plus the state fee above |
In Washington, you file your LLC with the Secretary of State and register for a business license through the Department of Revenue. Depending on what you do and where you work, your city may also require its own endorsement. Washington also has a business and occupation (B&O) tax based on gross receipts rather than profit. Talk to a tax professional about whether it applies to you and what small business credits you might qualify for.
Check for State Veteran Fee Waivers
Some states waive or reduce formation fees for veterans. Pennsylvania, for example, waives its LLC filing fee for veterans and reservists under Act 135. Michigan has waived certain filing fees for veteran-owned businesses.
These programs change, so verify with your Secretary of State before you file. Texas is a good example of why. It offered a formation fee waiver and a five-year franchise tax exemption for new 100% veteran-owned businesses. Sources disagree on whether that program ended on January 1, 2026, or was made permanent, so check with the Texas Secretary of State directly.
If your state has a waiver, it may require you to file directly with the state rather than through a service. Ask before you pay anyone.
Step-by-Step: Forming Your LLC
Most states follow the same basic order. Doing the steps in sequence saves headaches, especially with the EIN; the IRS recommends forming your entity with the state first so your application isn't delayed.
Choose and check your name. Search your state's business name database, and do a quick trademark search on the USPTO website. Check whether the matching web domain is available, too.
Pick your registered agent. Decide whether to serve as your own or hire a service.
File your formation document with your Secretary of State. It's called Articles of Organization in most states and a Certificate of Formation in Washington. Pay the state fee.
Sign an operating agreement, even if you're the only owner. Make sure it reflects veteran ownership and control if you plan to certify.
Get your EIN for free on IRS.gov.
Register for state and local licenses and taxes. In Washington, that's the Department of Revenue business license plus any city endorsement.
Open a business bank account. Banks usually ask for your formation document, EIN, and ID.
Put your annual report deadline on your calendar. Missing it is one of the most common ways small LLCs lose good standing.
Common Mistakes to Avoid
The most expensive mistake is paying for things that are free. EINs are free, and BOI reports are no longer required for U.S. companies. And you don't need a pricey "premium" package to start a one-person LLC.
The second is mixing personal and business money. Your liability protection depends partly on treating the business as its own thing. Run business income and expenses through the business account, and pay yourself from it on purpose.
Third, watch your mail for official-looking notices. After you form a company, you may get letters that look like government forms, offering to file your annual report or send a "certificate of good standing" for a steep fee. Always check the sender, and file directly on your Secretary of State's website.
Finally, don't lock in an ownership structure that blocks certification later. If veteran-owned contracting is part of your plan, get the operating agreement right from the start. Changing ownership after you've grown is much harder.
Free Help With Formation
You don't need to pay for advice at this stage. Veterans Business Outreach Centers, Small Business Development Centers, and SCORE mentors all help with business structure questions at no cost. For more places to find support, see my post on veteran entrepreneur networks.
Conclusion
Your military service has already equipped you with the foundation for entrepreneurial success. Forming a business is mostly paperwork, and most of it you can do yourself in an afternoon. Pick the structure that fits your risk and your plans, and get your ownership documents right, especially if you plan to certify. Pay only for help you actually need. The money you save on formation extras is better spent on your first customers.
Thinking about starting or growing your business? The same discipline that served you in uniform can build something of your own. Schedule a free consultation to talk through your plans.