I've been toying around with the LLC idea lately too. I just can't justify spending the money to form the company at this point.
As has been suggested I would check with an accountant and a lawyer first to know what the pros and cons are. They may also have other suggestions that fit your needs better. If all you care about is liability, for example, a lawyer can create a generic contract that spells out your responsibilities to your clients without having you having to form a company.
Thanks rb3m; I have spoken to a corporate/business attorney and he advises that an LLC is the best way to go for my situation. It's all those other things that go along with 'setting up a business' that i've never done before that confuse me.. I'm figgering it out - Google is my best friend lately..
While this seems good on the surface, you never know how a court will interpret a contract when it comes down to a lawsuit. I'm sure there have been a lot of cases where it seemed cut and dry, but the outcome left people scratching their heads... Maybe it's a long shot occurence, but I'd still feel much safer being protected by the wall of an LLC.
Corporations do provide a legal barrier to liability, but that's not all she wrote. A corporation is a legal person. When a corporation acts as a legal person, it's the proper defendant. If a judgment is rendered against a corporation, the recovery is limited to the assets of the corporation. If they don't get a judgment against the corporation owners as individuals, they can't go taking the personal assets of the corporation's owners. However, as noted above, the corporate veil can be pierced if you don't dot your i's and cross your t's. It's not too hard to maintain the corporation as a proper corporation in most jurisdictions (appoint some directors and officers, hold an annual meeting or two, and spit some lightly modified form minutes out of the printer for filing) but a surprising number of small companies don't bother. In addition, you can still be sued personally if you have done something personally; while the corporation is the proper defendant for actions taken by the corporation, that you own a corporation is not some kind of magic charm that makes you personally invulnerable to lawsuits. For example, if you post something libelous, the plaintiff's attorney is likely to sue both you individually and your corporation. In terms of types of corporations to form, there are three basic options in most US jurisdictions: A corporation, registered with the IRS as a C subchapter corporation. A corporation, registered with the IRS as an S subchapter corporation. A limited liability company. From the perspective of the state issuing the corporate charter, and from the perspective of contract or tort claims, there is no difference between a C and an S corporation. When your corporate charter is issued, the state neither knows nor cares what tax status you will elect. The difference between S and C has to do with the IRS. If you elect S corporation status (which is available, basically, only to smaller, closely held corporations) no tax gets paid at the corporate level to the federal government. The income passes through, and each shareholder pays their pro rata share of the declared income at their personal tax bracket (they pay that tax, btw, even if the corporation chooses not to forward any of the income to them, and even if the income is not matched by actual cash flow. That can be a problem if someone else controls the corp or if you have big paper profits without cash flow.) In a C corp, the corporation pays federal income tax to the federal government. When and if the corporation passes along some of that income to its shareholders as dividends, they pay taxes again on that income. If I'm not mistaken, the current C corp tax rate is 35 %, and last I checked the federal rate on dividends was at least for now only 15 %. The top federal tax bracket for individuals is below that, but not all that much below that. Whether you are better off doing C or S status depends on a lot of issues, including whether you intend to pull the money out now or later, and what you think will happen to federal corporate and individual tax rates. If you elect S status, and don't make any money, you can lose the ability to take deductions against your other income if you are ruled to be a hobby business. That has nothing to do with whether you will be personally liable if the corporation gets sued - even a hobby business provides a legal barrier to liability for actions taken by the corporation, so long as the corporate formalities are followed so that the veil cannot be pierced. The other corporate option is a limited liability company, which is basically a hybrid between a limited partnership and a corporation. It has a tax pass through status like an S corporation. In a lot of states, it offers more flexibility in terms of ownership and management. The annual fees can differ with LLCs, and in many states are quite a bit higher. Most people assume that, for the purposes of liability, a LLC is the same as a corporation. I assume that as well, but I'm not up the curve on how clearly the statutes are written to provide that or how well tested that has been in court cases. LLCs are a fairly new animal, and while there shouldn't be any big surprises, sometimes courts do crazy things. (In a limited partnership, which is one of the forebears of a LLC, the limited partners do enjoy some protection, but the general partner running the business is completely on the hook.) This is not legal advice. Repeat - this is not legal advice, and you would be a certified idiot to take important actions based on a forum post. All this stuff varies by state, and you need to talk with a local attorney who knows his stuff. The IRS stuff also changes its regulations frequently, and you need an accountant or an attorney who stays up to date.
LLC's can be single member. Your attorney should be able to help you with any requirements. One major benefit of an LLC over a corp is that you do not need all the formalities of a corp. But, yes, a one man show can still hold meetings and make decisions. Where do you live? Contact the local bar association and see if that can provide you with a legal referral. Many bar assocciations refer you to meet with an attorney where the initial meeting is free or very low cost. You can ask a ton of questions and get a much better idea of what is really best for you.
It's $500 in most states then an additional $500 every year. With an LLC, no one involved in the company has any personal liability, under normal circumstances. With an LLC you avoid double taxation, which is when the company is taxed, and then you are personally taxed when you claim any profits as income. This page is fairly easy to understand and breaks down the differences/advantages/disadvantages of each. If you are confused about anything, feel free to post your questions and I will answer them.
The best thing to do is talk to a lawyear. If you are concerned about Liability, you will need a set of ByLaws / Articles of Incorporation that apply specificaly to your business. Most internet Corporation Companies provide a standard set of Articles of Incorporation / ByLaw, thus leaving loopholes in Standard and company specific terms. A lawyer will be able to do that for you.
To form an LLC is very easy an not expensive at all. BUT it is a lot harder to maintain LLC. Corporate tax returns are not cheap...