At what point in the life of a small business would you choose to do a LLC over a sole proprietorship? What's the advantage, and what's the cost of doing an LLC?


1 Answer 1


The primary advantage is protection of your personal assets. If your LLC gets sued, they can't take your house/car/dog/wife. There aren't really any financial incentives to be an LLC; because of the pass-thru taxing structure, you wind up paying the same in taxes either way.

"The cost" will depend on where you're located, and usually involves a few factors -- Expect to pay $300-500 to start it, depending on your state and who you register with (technically, you can usually register for free at the secretary of state, but wouldn't you rather pay an expert?), and "State Franchise Tax", which will can be a minimum of up to $1000/year depending on the state, plus even more if your LLC earns more than $xxx,000.

EDIT -- As an aside, I'll mention that I'm based in California, and our state franchise tax starts at $800/yr. I'm all-web-based, so I've been investigating incorporating in Nevada or Delaware instead (no franchise tax, lower filing fees), but from what I've found, it's hardly worth the trouble. In addition to having to pay a Registered Agent (someone to act as my permanent mailing address in that state for ~$100/yr), apparently California likes to search for people just like me, and charge them $800 anyway. You can fight that, of course, and claim that your business really is done in Nevada, but do you really want to?

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