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Choose a Business Entity
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Step 5:
Understand LLCs
Like the S corporation, the LLC has many of the advantages of a regular corporation, but fewer of the disadvantages. Long popular in Europe and South America, LLCs didn't exist in the U.S. until Wyoming legalized them in 1977. Now they're an option in all 50 states plus the District of Columbia.
Like S corporations, LLCs generally shield investors from personal liability while avoiding double taxation. Unlike S corporations, LLCs can normally have foreign investors--a potentially big advantage. Plus their managerial structure is less restricted than a corporation's would be. Still, LLCs must conform to strict state and federal regulations, including:
Limited life: many states require an LLC to dissolve after 30 years.
No sole proprietors: many states require at least two shareholders.
Increased paperwork: you'll have to fill out highly complicated paperwork to qualify for federal LLC tax status.
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