I just stumbled upon a good article from Mashable discussing the different types of Limited Liability Company structures that are available to small businesses. The IRS web site has a good overview of the different types of business structures available and their tax implications.
When I first started doing in-home and small business work on the side, I didn’t do anything regarding business structure. I just put the money I earned into my personal bank account … and claimed the earnings on my personal tax return, of course! In other words, my business was structured as a Sole Proprietorship. Later, when I decided to run my business full-time, I was advised to create a Subchapter S Corporation, or S-Corp, which has worked well for my consulting business with no employees other than my wife and I. Several years later, I learned about the option of forming an LLC and was curious. It seems that LLCs could provide some advantages, however, in the state of Illinois, they are (were?) more expensive to form than in other states, so it made little sense for me to change my business structure. However, for independent technology professionals looking to start up a company, it is definitely worth looking into structuring your company as an LLC. Every state has different laws and regulations regarding forming an LLC, so consult with your attorney (and possibly your accountant) before making a decision in this regards. You do have an attorney and an accountant, right? If not, stop what you’re doing and start researching reputable attorneys and accountants right now!
What type of business structure does your company have? If you’re getting ready to start a company, what type of business structure are you considering and why?