So you've drafted a killer business plan, lined up your investors and want to formally register your business: But don't even think about incorporating unless you've considered the Limited Liability Company.
Basically, the LLC affords business owners some of the same liability protections as a corporation, but it allows for more flexibility in structuring and financing the company.
Unlike a corporation, an LLC doesn't require a board of directors, shareholders and officers.
In fact, management authority can be divided any way you want, says Michael Diamond, Georgetown law professor and author of
How to Incorporate.
On the finance end, one investor can be paid disproportionately to his investment or before other investors, while in a corporation dividends must be paid out according to stock holdings, explains Anthony Mancuso, a California business attorney.
So Here's Your Quick and Easy Guide to the LLC:
1. Rely on an expert:
Consult an accountant or attorney who has experience in setting up corporations.
They will help you figure out how to structure the company -- from the number of board members to your management team -- and will walk you through the financial structure -- from how many to what types of shares you want to sell.
Figure all this out before filing the incorporation papers.
2. Write it all out:
Get everything in writing, especially when investors are friends and family.
A contract that clearly spells out issues like how to resolve conflicts and how an investor can get out will help you avoid any future headaches.
3. Keep your records close:
Too often, small business owners overlook record-keeping because they're inexperienced or think that, given their simple corporate structure, they don't need it.
Not only will clear and accessible records help come tax season, it's also good business to know what and how your company is doing financially.
4. File it yourself:
Filing your own incorporation papers will save you money -- as opposed to paying companies like
Legalzoom.com upwards of $139 to do a similar job.
Simply go to your state's website and print out the necessary documents. Some states even allow owners to file by fax or online.
Remember, though, that the LLC can still be pricey: Linda Wong, founder of eco-friendly handbag company,
, opted to incorporate instead of filing an LLC because the LLC publication requirements in New York cost a hefty $1,300.
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Lan Nguyen is a freelance writer based in New York City. She has written for the New York Daily News, The Wall Street Journal, Worth magazine and Star magazine.