For new business owners, limiting the personal liability of the owner for
business transactions should be an important concern. The type of business
structure created will significantly impact the owner's exposure to
On one end of the spectrum is the sole proprietorship, a form of business
in which a person directly owns the business assets and is personally
responsible for its liabilities. There is no legal distinction between
the owner and the company, and therefore no limit to the owner's personal
liability. On the other end of the spectrum is a corporation, a legal
entity which is wholly separate and distinct from its owners (i.e., shareholders)
who are shielded from personal liability. However, strict adherence with
detailed corporate laws and formalities is required or the owners risk
losing the basic protection of the corporate structure.
In between the two extremes are general partnerships, limited partnerships,
S-corps, and limited liability companies, among others. Each provides
varying degrees of protection from personal liability. The limited liability
company (LLC) has become popular because it combines many of the favorable
aspects of other structures, including the flexibility of a sole proprietorship
or partnership, limited personal liability like a corporation, and pass-through
income tax treatment as with an "S-corp".
If you're starting a new business or have an ongoing business, you
should consult an attorney for advice on which structure best achieves
your particular personal and business needs and goals.