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An LLC is similar to a sole proprietorship in relation to most of the organizational and taxation simplicity. It has some personal financial liability as well.

In the US, an LLC is made up of one or more owners. LLCs are afforded limited liability from company debt and are given the opportunity to choose between being taxed like a corporation or a sole proprietorship. This type of company allows small-business owners who do not want to incorporate the opportunity to have the freedom of limited liability from company debt.

The main advantage of an LLC is that the members are protected from some liability for acts and debts of the LLC, but are still responsible for any debts beyond the fiscal capacity of the entity. In most states members are treated as entities separate from their members.

One of the main disadvantages of an LLC is that there are more forms to complete. For example, you must file Articles of Incorporation with the Department of State in the state in which you will be conducting your business. The filing fee and minimum tax fee vary according to the state you do business. Another requirement of an LLC is to create an Operating Agreement that details what each partner’s participation in the business is going to be. It is not required to file this agreement with a government agency but you are required to store the agreement in the place of business. Check with your Secretary of State office for any other requirements it may have for LLCs.

See How to Form and Operate a Limited Liability Company, a book in the Self-Counsel Press Legal Series for more information about LLCs.