Before you choose, it's helpful to know a little bit about the various types. The following information will help you to decide what kind of company to start.

LLC
An LLC, or Limited Liability Corporation, has become the company of choice for many small business owners. With an LLC, the owners' personal assets are protected because they are separated from that of the company's. So if there were any legal issues regarding debts or collections, or if your company was sued, with an LLC they could only go after the company's assets. Without an LLC, as an owner your home, cars, savings, and other assets could be seized.

There are other advantages to an LLC as well. LLCs are not double taxed, and they are relatively inexpensive to obtain.

On the down side, you can never go public with an LLC-you'll have to switch to a corporation. In addition, laws for LLCs are different in every state, so if you plan on doing business in different states, you'll have make sure you understand their laws as well.

Corporations
There are many different types of corporations, but the most common are S Corporations and C Corporations. The main difference between the two is that the income from an S corporation is not taxed under federal tax laws, whereas an S corporation is.

Corporations typically have a number of tax advantages. For example, once a business is incorporated it can then file for a small business tax reduction, which is 16% of the first $200,000. Once a business is incorporated, it can also write off fringe benefits like medical and dental insurance, and money not paid to the owner is no longer subject to self employment tax.

Downsides to corporations include much more paperwork than an LLC. Corporations are also required to hold directors' and shareholders' meetings, keep corporate minutes, and hold shareholder votes on major corporate decisions. As a result, the owners don't have as much control of their company as an LLC or proprietorship.

Sole Proprietorship
This is the easiest type of company. With a sole proprietorship, there are no papers to file or fees to pay-simply state you are a sole proprietorship when you go to register your business.

The main advantages include ease of setting up and full control of the company. However, there are downsides. With a sole proprietorship, the owner and company are one and the same with regards to finances. This means the owner, not just the company, has full liability for everything. In addition, sole proprietorships are subject to self employment tax, meaning they have to withhold and pay taxes for Medicare and other benefits.

Which is right for me?
Deciding which company to choose can be difficult. Generally speaking:

• Sole proprietorships are good choices for companies that have limited liability and plan on staying small.


• LLCs are a good overall choice for small businesses with the potential for liability but aren't yet large enough to incorporate.