Q:

Why would you need to form an LLC?

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Quick Answer

Forming a limited liability company is a good option for a businessperson who is worried about being sued, has an online business or wants to keep his personal finances separate from his business finances. LLCs can also be a good option for heavily invested non-businesspeople who desire the financial benefits that come with an LLC.

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A businessperson who is worried his commercial liability insurance coverage may not be enough to protect him from a lawsuit can look into forming an LLC, and that's especially true if the business deals directly with the public. An individual who is heavily invested in a business might desire a way to protect his assets from creditors and formalize ownership of those assets, both of which are good reasons to form an LLC. Additionally, having an LLC helps transfer assets listed in a will.

As of 2011, forming an LLC can cost anywhere from about $5,000 to $30,000. Cost depends on the complexity of the circumstances. Many businesspeople feel the cost is worth it for the legal protections and tax advantages of having an LLC.

Some businesses are unable to form LLCs, such as insurance, trust and banking companies. Some states, such as California, have laws against certain types of professionals forming LLCs. Such professionals include doctors, accountants, architects and licensed health care workers.

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