You should consider forming an LLC if you are concerned about personal exposure to lawsuits or debts arising from your business. For example, if you decide to open a store-front business that deals directly with the public, you may worry that your commercial liability insurance won't fully protect your personal assets from potential slip-and-fall lawsuits or claims by your suppliers for unpaid bills. Running your business as an LLC may help you sleep better, because it gives you personal protection against these and other potential claims against your business.
Not all businesses can operate as LLCs, however. Businesses in the banking, trust, and insurance industry, for example, are typically prohibited from forming LLCs. In addition, some states, including California, prohibit professionals such as architects, accountants, doctors, and licensed healthcare workers from forming LLCs.
You can also get limited liability for your business by forming a corporation. For information on the differences between these two business structures, see Nolo's article Corporations vs. LLCs. For more information on forming an LLC, read Nolo's article How to Form an LLC.