Starting a business: LLC or sole proprietor?

Many new owners form an LLC because someone told them to. It is often the right call, but it helps to know why.

What an LLC protects

An LLC keeps the business's debts and lawsuits separate from your house and personal savings, as long as you keep the business's money separate too.

Three questions to ask first

• Could the work hurt someone or damage property? Then the protection matters more.
• Will you have a partner? Then you need an operating agreement, whatever you form.
• Will you sign a lease or a loan? Lenders often ask for a personal guarantee anyway.

The next step

Open a separate bank account on day one. It is free, and it is the habit that keeps the protection working.