You have a lot of decisions to make when you start a new business. Do you want to have business partners? Do you want to go public? And, how much personal liability do you want to expose yourself to?
Minimal liability protection
Sole proprietorships offer the least liability protection. In a sole proprietorship, you and you alone own your business, and your business is not a separate legal entity. This means that your personal assets can be sought to repay the debts and obligations of your business.
Partnerships can offer more liability protection than sole proprietorships, but there is still some personal liability. In a limited partnership, the general partner is responsible for paying self-employment taxes and enjoys unlimited liability. The other partners have limited liability.
Greater liability protection
Limited liability companies offer more liability protection compared to sole proprietorships and partnerships. In an LLC, your personal assets cannot be tapped into if the LLC is sued or goes bankrupt.
Corporations create a separate business entity. This means that the officers and shareholders are not personally liable at all for the debts and obligations of the corporation unless the “corporate veil” is pierced. Corporations provide the strongest protection against personal liability compared to other business structures.
Which business structure is right for you?
It is important to decide how much liability you want to be exposed to when choosing a business structure. However, you will also want to consider other factors when choosing a business structure.
You will want to consider how much money you are willing to sink into a new business. You will want to consider whether you want to go into business with more than one person. You will also want to consider whether you want your business to go public. If you work through the process carefully, you can choose a business structure that best meets your needs.