The LLC Question
One of the first questions new founders ask: 'Do I need an LLC?' The answer isn't always straightforward, but this guide will help you decide.
What an LLC Actually Does
An LLC (Limited Liability Company) creates a legal separation between you and your business. This means:
- Liability protection: Business debts and lawsuits generally can't touch your personal assets
- Tax flexibility: Choose how you want to be taxed (sole proprietor, partnership, or corporation)
- Credibility: Some clients and partners prefer working with formal entities
Signs You Need an LLC Now
- You have significant personal assets: Home, savings, investments you want to protect
- Your business has liability risk: Physical products, professional advice, client data
- You're signing contracts: Vendors, clients, or leases want a business entity
- You're hiring: Employees require proper business structure
- You're seeking investment: Investors expect a formal entity
When You Can Wait
- Testing an idea: Validate first, formalize later
- Very low risk: Simple services with minimal liability exposure
- No revenue yet: Don't pay for structure before there's a business
The Formation Process
- Choose your state: Usually where you live or do business
- Pick a name: Check availability in your state
- File articles of organization: $50-500 depending on state
- Get an EIN: Free from the IRS, takes 5 minutes
- Open a business bank account: Keep finances separate
- Operating agreement: Even solo, document how the LLC operates
Common Mistakes
- Piercing the corporate veil: Mixing personal and business finances destroys liability protection
- Wrong state: Delaware isn't always better — it adds complexity
- Skipping the operating agreement: You'll need it eventually, write it now
When in doubt, consult a business attorney. The cost of proper setup is far less than the cost of doing it wrong.