Limited Liability Companies

A limited liability company (LLC) uses elements of corporations as well as partnerships in its organization. Generally, your state’s secretary of state must receive filed papers to create an LLC. In most states, one person can form an LLC. The filing also requires a written agreement which details the rights and responsibilities of all LLC members. LLC owners only risk money which they have invested. An LLC’s debts can legally only be paid using the LLC’s assets. The owners are therefore protected against personal liability. However, LLC owners report their share of profits and losses as personal income; the LLC is not a taxable entity. An LLC can be very complex to set up.

Corporations

A corporation is legally a separate entity from its owners and managers. Corporations are legally considered persons, and can enter contracts, incur debt, and pay taxes independently. The owners are therefore protected from the corporation’s creditors and only liable to lose money invested in the corporation. Creating a corporation requires several important legal procedures, which generally include:

• You must file articles of incorporation with your state’s secretary of state.

• You must produce written bylaws to govern the corporation, including meeting rules, decision processes, and voting rights.

• You must convene an initial meeting of the board of directors.

• You must issue corporate ownership stock.