How to Determine If Your Business Is Eligible to Become a Limited Liability Company

To determine if your business is eligible to become a limited liability company, it's essential to understand why people choose this business model. The limited liability company, or LLC, is used mainly as a way to protect business owners from personal liability for debt. An LLC is more complex to set up than a sole proprietorship or a partnership, but in many cases, the benefits outweigh the costs.

Things You'll Need

• Computer with Internet access
• Legal consultation

Instructions

1. Sit down with your small business adviser or attorney to determine how much effort and money you want to spend to set up the business. If you want a simple start-up and have limited capital, then starting as a sole proprietorship or partnership might make the most sense. You can always change your status.

2. Consider the personal liability you are likely to see as a business owner. If you expect a high degree of personal liability, it might make good sense to form an LLC right off the bat, regardless of expense.

3. Consult your lawyer to draw up the articles of organization for a limited liability company if you've decided your business is eligible to become an LLC. Your lawyer will also be useful in helping you and your partners create the operating agreement.

4. Prepare for a couple weeks of processing, in most states, to create your limited liability company.

Tips & Warnings

• Seeking advice from the Small Business Administration, as well as a good small business attorney, in the initial stages of your business will help you make the right decision as to its structure.

• Though choosing to be an LLC will limit your liability when it comes to financial risk, it is not a cure-all for liability issues. You will still stand to lose your investment in the company should your LLC's assets get seized, for instance.