Tip #3, Create your legal entity as an LLC

by andy on June 8, 2010

LLC bookIf you research how to form a legal entity for your company, you will find many books and sites that will talk about all the options.  You can choose from among a C-Corporation, S-Corporation, LLC, Limited Partnership and more.   While there are plusses and minuses of all the choices, what many books end up recommending is an LLC.

For most entrepreneurial ventures, an LLC is often the best choice.  One exception is that if you have a company that you believe has a good chance of growing quickly and have an IPO in your sights, the best choice can be a C-Corp.  A C-Corp allows you to grant stock options, while an LLC does not.  Were you to get close to an IPO, your attorney would likely want you to change the legal entity to a C-Corp.

An LLC is very flexible because it offers you individual protection while allowing you to easily change to another legal entity if desirable.  In fact, it doesn’t work the other way.  You can’t easily go from an S-Corp to an LLC for example.

When creating an LLC, you have three options.

1)      Legal counsel. Attorneys that specialize in creating legal entities are very proficient.  They have all the LLC document templates and can usually get everything done from start to finish in a few weeks.   The cost usually runs around $1,500 – $2,000.  (Incidentally for a C-Corp you should plan on spending about $5,000).

2)      Low cost legal services. By Googling “create an LLC” you will see lots of options for getting an LLC created.  You can use an online site like LegalZoom or Incorporate.com.  This can be a great option that saves money while still having an expert keep you inside the guardrails.

3)      Do-it-Yourself. Surprisingly, creating an LLC yourself is not that difficult.  Standard form templates are available on the Secretary of State website for your state.  Most states also have an online option for filing and being granted your LLC.  This can be turned around in a few hours once you submit the forms.  This is by far the least costly option, and only takes a little bit of your time to learn what to do and what not to do.

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