Final answer:
To form an LLC, a charter and operating agreement are required, distinguishing it from sole proprietorships, partnerships, and corporations. An LLC offers liability protection and potential tax advantages and must follow specific state regulations for formation.
Step-by-step explanation:
To form an LLC, a charter and an operating agreement must be filed with the Secretary of State in the jurisdiction where the business will operate. This is specific to the establishment of a Limited Liability Company (LLC), as opposed to other business structures such as a sole proprietorship, corporation or general partnership. An LLC combines the liability protection of a corporation with the tax benefits and simplicity of a sole proprietorship or partnership.
A sole proprietorship is the simplest form of business, owned by one person without a separate legal entity. On the other hand, a partnership involves two or more individuals who co-own the business and share responsibilities as well as profits. A corporation is a more complex and formal legal entity that can sell shares to raise capital and is typically subject to more regulations than sole proprietorships or partnerships.
Setting up an LLC provides several advantages, including liability protection for the owners—known as members—and potential tax benefits. However, the specific rules and requirements for forming an LLC, like filing the necessary charter and operating agreement, vary by state.