LLC

Overview

An LLC is a Limited Liability Company and it is one of the several different business structures that you can choose when you register a company. An LLC is set up very similar to a corporation in structure with a few key differences. It is also a relatively new type of business structure. Certain types of businesses like banks and insurance companies cannot be set up as an LLC.

How it Works

You have to file articles of your organization with the secretary of state's office and pay any fees associated with registering an LLC. Many people who form LLCs and corporations hire lawyers to handle the filing and the paperwork, so if you are not sure about the steps to take, it is an option available to you.

Benefits

Owners of an LLC are not liable for the debts of the company, like in a C-Corp or an S-Corp. the personal assets of the owner are safe, even if the company may be in red. The owner's assets are used to pay business debts in sole proprietorships and partnerships, but this is not so in an LLC. The owner and the business are seen as separate entities, so the assets of the owner are safe.
In sole proprietorships and general partnerships, an owner's assets can be used to pay business debts, but with an LLC, the owner and the business are seen as separate, so their assets are safe.
An LLC is not taxed like a corporation. All profits and losses are reported on the owner's personal income taxes and paid (or deducted if a loss) by them, rather than the business itself. So if the business does report a loss, the owner can offset from other income by deducting that business loss on his or her personal income taxes.
An LLC is typically viewed very favorably in the business world making it easier to set up accounts with vendors and other businesses. Also, the stringent requirements of ownership for an S-Corp do not apply with an LLC, and the company can be structured in any manner the owners choose.

Costs

The cost for forming an LLC is usually less than the cost for forming an S-Corp or a C-Corp, but the cost is generally more when compared to forming a sole proprietorship or a partnership (however LLCs often are partnerships). An LLC often requires ongoing fees that partnerships and sole proprietorships do not have to pay. Other costs include special franchise fees and annual reporting costs. Typically, the LLC can cost around $800.

Timing

The best time to form an LLC is when you set up the business. However, depending on the structure of your business, you can transfer it to an LLC at a later time. A lot depends on the rules and laws in your state.