I've not done a lot of research on this yet, but I believe it boils down to two main things:
To create an LLC you need to file some paperwork (yourself, through a lawyer, or through one of those websites that do the whole thing for you - can't think of one single name now!). Being in NY means the filing fees are astronomical (for me, at least). If you start as a SP, all you have to do is start working and selling (making sure you follow all the Health Department guidelines, of course).
If you file for a LLC, your personal assets are protected (that's the Cliff's Notes on this...the subject is way longer and more complicated than what I am describing here). Say someone eats one of your truffles and gets sick; if you are a SP and gets sued, they can come after your personal assets, including house, car, etc. If you work under a LLC, then only the LLC assets are in danger. Your personal assets are separate from the LLC.
I hope this helps you a little.
My suggestion: speak with SCORE (www.score.org). They are very helpful.
The total cost for any corporation in NY (C, LLC, S) is dependent on the locality where you are filing.
If you are in NYC, they can require that you post notice in The New York Times and The Wall Street Journal (they won't for a small corp but the point is they could). Out here in Westchester I needed to file in the county business journal and one other, so I think it cost me a couple of hundred bucks - 12 years ago now.
As for what's the correct form of corporation that's for you to decide, maybe with the help of a lawyer. If you want to accept credit cards by some mechanism other than PayPal or its ilk, you do need to be incorporated and have a business bank account and file for a NYS tax ID. Depending on what kind of business you're in you might also have to file for any number of local business permits as well - even if you're operating out of your home.
I believe you do not have to be incorporated to open a business bank account. All one needs to do is to go to the County Clerk (in Manhattan they are located on 60 Centre Street) and pay for a DBA (Doing Business As).
They will give you a document saying that you run your business as a sole proprietor under your own name, but doing business as (add the name you wish to use for your business, if not your own). Take this document to a bank and you should be able to open a business account.
In any case, these are basic information and they change from county to county (or State to State). You should look for a lawyer to better assist you with all this.
I just met with a lawyer becuase I'm switching from SP to LLC. Apparently, you don't necessarily have to file in the state in which your business is based. For some reason, lots of LLC's are files in Delaware. I would check out your local SCORE or SBA office and see if they have leads on pro bono lawyers to help you make this decision.
I've heard about this as well. I understand some companies decide to do that because of filing and annual taxes cost, which are much lower in some states...and some states are simply more business friendly than others.
I believe there are some catches, though. Google it up to get some basic info...search for "foreign corporation" and you will find tons of information online.
But, do talk to a lawyer before actually doing anything concrete.
Filing in states such as Delaware and Nevada are advantageous due primarily to low state taxes. There are also certain liberties a company based in Delaware or Nevada has, which are not available in other states. It is these liberties which are the reason why many companies that go public are filed in these states. It's a double edged sword though; you get the rope, and can easily hang yourself with it.
There are 2 reasons why people generally register a Corp in Delaware - taxes and case law.
Taxes in DE are reasonably cheap for coporations, thus a big advantage to those that generate high revenues and can off-set the additional costs of doing business in DE.
Case Law - case law in DE is highly favorable to Corps and there is a LOT of case law there to back up and educate you on how things will go in the state. Not all states have such history and puts a lot more of the decision in the hands of the judges and jury. This is especially important if you ever intend to raise significant amounts of capital for your business (>$1,000,000), plan to merge with another business or expect to go public at some point.
That said, DE does not have a lot of case law on LLC's since they are a reasonably new form of entity. Furthermore, registering in DE does not (in the case of NY) remove the requirement for publishing in NY. In fact, even if you register in DE, you'll still need to register in your state as a foreign entity and follow all the rules and regulations regarding that. In NY, for instance, you still have to publish.
In many cases, registering in DE, NV, MT or other states other than your home state doesn't really make sense and ends up costing you more in the long run. If you're not very familiar with the laws of both states or the accounting rules that apply, do yourself a favor and speak with an attorney that is. It's not as cut and dry as people make it out to be.
Worse comes to worse, you can always fix it. It's not cheap, but you can move corporate entities around if you need to.
I am in Texas and when I started my business I designated myself as an LLC, mostly for liability reasons. In Texas one can apply online directly with the Secretary of State and have a reply in the same day, and the cost is nominal.
I'm starting as a sole proprietor and will change to an LLC when I get more assets and my liability goes up. Currently I have a 2 million dollar general liability insurance policy. Sounds like a lot but it's pretty standard. I do it this way because this is the advice I've been given pertaining to my situation. I'd say talk to a few different professionals (lawyer, accountant, other small business owners) about your particular situation.
I will add that federal tax laws are that a SP and a single member LLC are treated the same (you and your LLC's taxes are the same). If you have more then one member Then do NOT file as an LLC but as a C corp (your filing is quite a bit more complicated as are the fees). Your taxes will then be tied in with the other people and according to my CPA it is a bit of a nightmare to work out (especially if there is a fall out - as has happened with me). If you are a single member business, LLC is fine, taxes are the same but check with your CPA on this. Filing with the State Corporation Commission (or your state equivalent) is pretty easy - in my state, NM, I filled out a two page form and paid $50 for the filing fee. But then, I'm in the wild west where things are slow and these things can be easy to do.