Llc Article

After getting laid off from a senior engineering job last year, Marc Karell launched a consulting business from his home in Mamaroneck, N.Y. But before he landed a single client, the unemployment benefits he had been relying on to make ends meet came to a sudden halt.

The reason: He established his venture, Climate Change & Environmental Services, as a limited liability company, or LLC.

Mr. Karell says that had he known the move would mean an end to his layoff benefits, "I probably would've held off on being an LLC for a little while."

Deciding what kind of legal structure to form for your new business -- and when to do it -- may require more research and consideration than other tasks. Rules regarding eligibility to collect unemployment benefits vary by state, as do the costs associated with setting up the various types of entities. And each option has distinct tax, liability and administrative implications.

"You have to understand the ramifications of choosing one form or another or none at all," says Matthew S. Gilman of Boston law firm Pepper Hamilton.

In general, most small businesses are structured into one of five basic forms: a sole proprietorship, partnership, C corporation, S corporation or limited liability company.

You don't need to file paperwork to establish a sole proprietorship, which is a business that's owned by one person or a husband-and-wife team. The same goes for partnerships, defined as enterprises with two or more nonmarried owners. For this reason, these options are typically the least expensive -- though most states and cities do require entrepreneurs to obtain a license or permit to operate and will charge various fees.

C corporations, S corporations and LLCs, which differ by their tax structure, require filing paperwork. C corporations typically pay taxes twice -- first on all income that's left after business expenses are paid and again on that income when it's distributed as dividends to shareholders. S corporations allow...