By default, as a US Citizen, you already can act like a business. You are a Sole Proprietorship, meaning that whenever you conduct a business transaction, you are doing it on your own behalf.

Sole Proprietorships are excellent for one specific thing--simplicity.

It doesn't take anything special for you to be what you already are.

There are some downsides to being a Sole Proprietorship, and this will serve as the basis for why you'd choose to create an LLC instead.

A Sole Proprietorship will often have difficulties setting up business-specific requirements like business bank accounts, payroll providers, and business insurance. Some jurisdictions will also not provide a business license to Sole Proprietorships.

Being a Sole Proprietorship instead of a legal business entity also limits your options for things like raising venture capital, getting state and federal grants, and being able to accept certain types of business-specific loans through the SBA.

There's nothing stopping you from changing to an LLC or C-Corp in the future if you find yourself with a limitation like that, but the process to migrate an existing operational business to a different type of corporate structure often takes time, and if you're on the clock to submit a Federal Government RFP that's due next week, it's probably far too late to get your entity registered in time to set up a profile on SAM.gov.

Do It Now

You're building a business, so do yourself a favor and just create your business entity now. Get it out of the way and get back to the hard part--making money!

An LLC, or Limited Liability Company, primarily does what it's name might suggest--it limits your liability.

Liability is a fancy word that means "responsibility for, according to law."

What that boils down to is that when you're conducting business, every action you take has some level of risk attached. Your simple lawncare business might seem like a low-risk venture, but what if your lawnmower throws a rock through the window of your customer's Ferrari? With a Sole Proprietorship, you are personally on the hook for any of these actions.

If you don't have the cash to pay for the damages to your customer's sweet car, she might take you to court and sue you for damages. As a Sole Proprietorship, even if your business isn't making money, the judge can award damages to the Ferrari owner and have that judgment follow you around until you've paid everything back. Your liability for that damage is infinite!

While paying for a windshield might not be the end of the world, what if one of your employees cuts off a foot? Medical bills might bankrupt you beyond recovery.

An LLC creates a degree of separation between you (as a person) and the business (as an entity). In general, a lawsuit against your business will often stop at the business. If you get sued for a billion dollars and the LLC is bankrupt, it will often stop right there and you can go out and start a new business.

Warning: This is NOT legal advice. An LLC does not shield you from intentional behaviors that can cause harm. You can be sued and liable for things that you've done as a business. However, in the general day-to-day operations of your company, having an LLC is the best first step to preventing simple things from ruining your life.

PLEASE TALK TO A LAWYER THAT SPECIALIZES IN BUSINESS!!!

As an LLC, you'll also be eligible for many other state and federal programs. You'll also unlock access to specific programs that cater to small businesses through the SBA. An LLC is, at a minimum, a signal to the world that your new startup is a serious company and that you're ready to do business.

There are a few limitations to an LLC that you should consider now before you get started. If you are trying to build a high-growth tech startup that raises Venture Capital in your first few years, the first VC that wants to invest is going to insist that you form a Delaware C-Corp.

Going from an LLC to a C-Corp is not a difficult process, but it will take more time and will probably cost a little bit of money in legal fees. If you're planning on raising Venture Capital, it's probably best to just go straight to a Delaware C-Corp on day one.

If you're doing anything with Real Estate, there are a few jurisdictions (like Wyoming) that provide significant benefits to an LLC for specific uses like in Real Estate.

Another challenge with an LLC is that it's difficult to expand your team. If you're going to have a growing business and want to use equity or stock options as a way to motivate and reward your employees, an LLC makes this much more difficult than a C-Corp.

In general, if you're doing anything more complicated than just starting a new local business, there are probably better corporate structures available to you and you should definitely consult with a business attorney.

We would be happy to refer you to a number of good attorneys that specialize in whatever industry you're entering, so please talk to your Make Startups mentor before going any further.