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Despite the attractions, LLCs also have their disadvantages

If you plan to operate in several states, you must determine how a state will treat an LLC formed in another state

If you decide on an LLC structure, be sure to use the services of an experienced accountant who is familiar with the various rules and regulations of LLCs.

Since an LLC is relatively new, its tax treatment varies by state

Even after you settle on a business structure, remember that the circumstances that make one type of business organization favorable are always subject to changes in the laws. It makes sense to reassess your form of business from time to time to make sure you're using the one that provides the most benefits.

  • Limited liability. Your only risk is capital paid into the business. Business debts and other liabilities can't be squeezed out of your personal assets. Caution: If you personally guarantee a debt, you've forfeited your "limited liability."
  • Tax simplicity. Profits and losses are reported and taxed on owners' individual returns. There's no separate business tax return, unless you have more than one member and choose to be taxed as a partnership, in which case you file Form 1065.

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