Business structures that reduce personal liability

If you own or are thinking about establishing a small business, you may have concerns about whether you could be held personally liable in the event that someone files a lawsuit against your company. Virtually all small businesses are at risk in some manner or another, and this holds true even if you do not own a business in which the risks are obvious, such as a food-service entity.

So, what can you do to prevent those who may sue your business from coming after your personal assets, such as your home or your car? A key component in protecting yourself involves creating the right type of business structure from the outset.

Business structures that minimize liability

If you operate your business as a sole proprietor, you may find yourself in serious trouble if someone sues you, because you and your company are essentially one and the same in the legal sense. There are, however, several business formation options you can consider that reduce your personal liability, among them the S corporation and the Limited Liability Company.

An S corporation is a corporate business structure that offers you protection when it comes to your personal assets. While having an S corporation means you must file regular paperwork and conduct annual board meetings, among other stipulations, it also means your car, home and so on will be safe if someone files a lawsuit against your business.

LLCs, on the other hand, also protect your personal assets, and operating this type of business is often less complicated than operating an S corporation. This type of formation does have several drawbacks, however. For example, most investors prefer to place their money in an S corporation, as opposed to an LLC, so it may prove more difficult to find funding for this type of business structure, should you need it.

Even if you do not operate an inherently risky business, establishing one that protects your personal assets may help you sleep better at night.

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