Choosing the right business entity is one of the most important steps you need to consider when starting a business. There are plenty of options available, including sole proprietorship, partnership, corporation, and limited liability company (LLC).

LLCs are one of the most popular business structures out there, mostly because it is a flexible option but also because it limits the personal liability of business owners in case their business gets sued or needs to file for bankruptcy. LLCs provide a lot of the protection a corporation does but allows you to keep your company as a small business until you make enough profits to turn it into a real corporation.


Each state has its own rules when it comes to opening an LLC, so if you consider an LLC is the right option for you, you need to start learning about the local rules and regulations. 

While some things are specific to the state you plan to start your business in, there is a lot of general advice entrepreneurs can take into consideration when opening an LLC. But before we dive into that, let’s take a closer look at what an LLC actually is.  

Limited Liability Companies – what exactly are they?

Put simply, an LLC is a mix between a corporation and a partnership. Just as a corporation, an LLC protects the owners from personal liability in case something happens with a business. It can have one or more owners, called members, which can be individuals, corporations, or even other LLCs. Also, there is no limit to how many members can own a part of the LLC. 


Similar to partnerships, LLCs allow members to report profits and losses from the business on their individual returns; an action that is called pass-through taxable income.

No matter if you are alone or want to start a business with someone else, an LLC keeps you protected while allowing your business to expand and grow, similar to how a corporation would. This is an especially suited option for small businesses and startups looking to start small and expand in the future. 

Now that you have a bit more knowledge about LLCs, it is time to discuss some key aspects business owners need to keep in mind before starting one. 

LLCs won’t actually save you money on taxes

It is a common belief that opening an LLC will save you money on taxes. While many business owners think so, LLCs should not be considered a tax-savings strategy. Whether you want to start an LLC or a sole proprietorship, you will generally have to pay the exact same tax rates. 

If you are looking to save some money on taxes, you can start your company as an LLC and change it to an S-Corp in the future. Keep in mind that net income means the income left after you took care of taxes and paychecks (even your own).

While LLCs provide limited liability protection needed by beginner entrepreneurs, they should speak with an accountant or tax professional to determine the right structure for their situation.

You will most probably need help

One of the most important aspects of becoming a successful entrepreneur is acknowledging the fact that you will not be able to do everything on your own. You have a lot on your plate already, so what is the point in losing precious time to learn about payrolls, expenses, and bookkeeping, when you can hire a bookkeeper or a certified public accountant to do this work for you? They are professionals who know their job and will most definitely be able to come up with the information you didn’t even know exists. 

Your business will also need a registered agent, which serves as the point-of-contact for your LLC’s legal correspondence. You are assigned a registered agent when you register your business as a legal entity, but that does not mean you can’t choose one yourself. You can even choose to be your own registered agent, but this brings on a lot of extra responsibility. The best thing you can do is find an LLC registered agent with experience in the field so that they will be able to take care of these aspects for you. 

The state in which you form the LLC matters a lot

Regardless of the state, you live in, setting up an LLC is usually an affordable option. A business owner will end up paying between $200 and $600 to have their business registered as an LLC. 

However, the annual fees and maintenance costs associated with an LLC can vary greatly depending on the state in which you decide to form it. For example, California is known to charge LLCs a franchise tax each year. This tax is $800, and you need to pay it whether your business makes profits or not. 

Other states may not charge franchise taxes, but they may have higher LLC maintenance costs. It is advised that entrepreneurs do a thorough cost-benefit analysis before they decide to open an LLC in any state. This is the only way to determine if a limited liability company is the best option to cover your needs. 

You need to pay attention to the LLC name as well

One of the aspects you will need to consider when opening an LLC is the name you are going to choose. Besides ensuring you choose an original name and avoid any copyright and trademark violations, there are some other things you need to keep in mind when choosing a name for your LLC. 

First of all, the name needs to end with the LLC abbreviation. Then, you need to check with state laws to ensure the name does not contain terms that may be prohibited, as for example, bank or insurance company.

While this is not necessarily a rule, it is advised you don’t pick a name that limits you from expanding your company, such as New York Tries, LLC. Think on a larger scale and ensure you are not limiting yourself.