To LLC Or Not To LLC?

Deciding whether to scramble aboard the LLC bandwagon is one of the most important decisions you'll make in forming your start-up, so it shouldn't be taken lightly-no matter what the headlines say. An LLC structure gives you the flexibility and tax benefits of a partnership plus the personal liability protection of a corporation. In 1977, Wyoming became the first state to adopt the LLC format, rooted in European and Latin Americans laws, and the 49 other states have since signed on. But should you?

Not without thinking about what your personal and business needs are. As Marc-David Seidel, assistant professor of management at the McCombs School of Business at the University of Texas, Austin, puts it: "Ask yourself if you really need the additional liability protection offered by the LLC structure. If not, it's less expensive and much easier on the paperwork to simply operate as a sole proprietorship."

And Seidel isn't lecturing from an ivory tower, either. He started two LLCs, both operating through a system of contracts with third-party providers. Let's look at the advantages an LLC offers.

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This article was originally published in the February 2001 print edition of Entrepreneur with the headline: To LLC Or Not To LLC?.