If the thought of forming a corporation is overwhelming, but you are concerned about protecting some of your personal assets, you may want to start a limited liability company, affectionately known as a LLC. (When I first looked into starting a LLC, I called my state government to find out what I needed to do and made the mistake of calling it a limited liability corporation. Donâ€™t make the same mistake I did. Apparently, it really upsets some people. The woman I was talking to literally yelled â€œNo!? into the phone. It took me a minute to figure out that her loud response was to the use of the word corporation.)
A LLC requires very little paperwork and, with a bit of patience, you can file it yourself. However, as with anything that has any legal ramifications, you should take a minute to call your lawyer to be sure this is the right thing for you and your business. Most LLCâ€™s can be formed cheaply, but don’t forget to find out about the cost of maintaining the company. In Maryland, you will need to pay three times the amount of your filing fee each year to keep your LLC active. Iâ€™d say itâ€™s a good idea to ask for a breakdown of what you will need to pay to establish the company and what fees are required next year so you donâ€™t end up with any nasty surprises.
If you file your own taxes, you’ll really appreciate one benefit of the LLC each April – you can still file as a sole proprietorship using form 1065. Just don’t forget to make your quarterly tax payments, too.
Insurance Ensures Protection
Before you make a final decision, you should be aware that an LLC does not protect you from personal injury lawsuits. If someone falls on the banana peel you tossed by the trash can, they can sue you personally. To protect your property, you should take out business liability insurance.