Starting an Online Business All-in-One For Dummies®, 3rd Edition

Limited Liability Company (LLC)

If you prefer entering into a business using an entity that offers a bit more legal protection to you and your partners than a partnership, a limited liability company (LLC) might interest you. (Although some states also recognize a limited liability partnership, or LLP, the LLC is more common.)

The LLC combines the flexibility of a partnership with the formal structure and legal protection provided by a corporation. As in a general partnership, income is passed through to the individual partners, and profits can be distributed according to your agreement. (Note that profit doesn't have to be split equally among partners.) An LLC allows you to have an unlimited number of partners, and permits you to raise money for the business by taking on investors (including other corporations) as members. Additionally, members or partners of the LLC aren't personally liable for the actions of the corporation.

If you choose to form an LLC, you have to file with the state, although the requirements typically aren't as stringent as they are in a corporation. (You're not required to maintain bylaws or keep minutes of annual board meetings, for example.) However, the requirements for forming an LLC vary by state, so you have to research those requirements for the state in which you file.