What is an LLC and why should I care?

Forming a Delaware LLCDoing business - even a small, internet-based business involving niche sites or write-for-income programs - as an individual can be a dangerous undertaking.  If you incur debt, it can affect your personal finances, and if someone decides to sue - and let's face it, no matter how honest and careful you may be in your business dealings, it's a safe bet there's somebody somewhere with the will to point a lawyer in your direction - the costs and penalties can dig into your family's livelihood and savings.

The incorporation process creates a business entity that provides a protective layer between your personal assets and those of your business.  There are a number of forms of incorporation, each with its own advantages and disadvantages, but the most common among small online business is the Limited Liability Company (LLC).

An LLC offers the liability protection of a corporation:  attorneys and debt holders, in most cases, have to come after the business, not you.  In addition, it provides the "pass-through" tax simplicities of a sole proprietorship or partnership, meaning that you avoid being taxed both at the corporate level and for the income you personally take from the LLC.

Why Delaware?

(No, you don't have to live there!)

Advantages of Forming a Delaware LLCThe little state of Delaware is the site of incorporation of over half of the Fortune 500 due to its business-friendly laws and tax policies.  For the owner of an LLC, this means no sales tax, no Delaware income tax, and no personal property tax, and the option to keep the owners' names private, if you so desire.  It also means that, should legal action become inevitable, you have access to Delaware's Chancery Court system, which is held up internationally as a model of equitable and efficient processing of business-related legal claims.

Delaware charges a one-time $90 application fee and a $250 annual fee to maintain your LLC - not out of line with similar costs in other states.  The only other requirement is that you retain a "registered agent" in-state - someone who's physically present to accept legal documents delivered to your business and forward them to you. 

Forming a Delaware LLC is very easy because a whole industry has sprung up in support of the incorporation process, and many of the firms in this industry specialize in creating Delaware companies, offering various levels of package deals to make the process simple and cost effective, handling most of paperwork for you. The biggest and best known of these is The Company Corporation, but there are a myriad of others as well.  Most will offer to provide registered agency for an annual fee, but it might be worthwhile to shop around for deals on this service.  The state maintains a list of registered agents here.

As with any legal process, be sure to consult with an expert about your best options for forming your business - but the Delaware LLC is an excellent option worth exploring!