It takes about as much effort to set up an LLC as it does to form a corporation. You file papers with the state of Alaska, the state gives you articles of organization which is like the LLC’s birth certificate, and the LLC is considered a separate person so long as you make an effort to keep it alive.
As a separate person, the LLC can enter into contracts, own property, and do business. This means that your personal assets such as your home, savings, cars, etc. are protected from the LLC’s acts, the acts of your employees, and the acts of the other owners of the LLC.
But unlike corporations, LLC’s are not subject to double taxation. They can be taxed as a sole proprietorship, partnership, S Corporation, or C Corporation. LLC’s also don’t require formalities and provide you with something called a charging order protection. There’s almost no downside to LLCs other than maintaining good standing with the state of Alaska and following its operating agreement.
Generally if you’re a small business and have a partner, sign contracts, have employees, or have valuable business assets, then you should form an LLC. As mentioned before, it’s the cheapest insurance you can buy.