Because it exists separately from its owners, the owners enjoy “limited liability” for the debts and liabilities of the company. That means the LLC’s owners are not personally liable for the debts and obligations of the company. Thus, if someone obtains a judgement against the company, the LLC (and not its owners) will be required to pay the damages. (Note that there are exceptions to this and in some cases the owners can be personally liable. Most notably in situations involving “piercing the corporate veil” due to fraud.)

However, there are many differences between corporations and LLCs. First, LLCs generally have less formalities. Depending on your state, you may not have to hold annual meetings or file annual reports, you likely don’t need a board of directors, and even officers are optional. Second, LLCs can choose how they want to be taxed. Most are taxed as a sole proprietor (if it just has one owner) or as a partnership (if it has more than one owner). You can read more about business taxation in this post.

First, you’ll file Articles of Organization with your state’s Secretary of State. This is kind of like your company’s birth certificate. It will include your name and a host of other organizational information such as your company’s purpose and duration. Keep in mind that your name must be unique–it cannot be identical to another registered business name in your state. Also, you’ll need to designate a Registered Agent. In short, this is the place where official mail and lawsuits can be mailed.

Second you should draft and sign an Operating Agreement. This document sets out the rules and procedures which will govern your LLC. For single-owner LLCs, this might just be a few pages. For multi-owner LLCs, your Operating Agreement will likely be 10-20 pages (or longer) and will likely cover things such as voting rights, economic rights, transfer restrictions, tax obligations, and more.