Selecting the Right Structure for Your Business

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 personal liability.

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.