Business formation types that limit personal liability

When you launch your own business, the type of business structure you choose to establish has far-reaching implications. The business structure you decide upon can ultimately impact everything from how you go about getting funding to how you pay your taxes. Understanding the differences between the various types can help you get a better sense of the best structure for your needs.

Often, the main goal of many entrepreneurs is limiting the amount of liability they have in their businesses. This is an important step for all types of business owners, regardless of the industry they plan to operate in.

All businesses have risks

While some sorts of businesses, such as those that involve food service or transportation, are irrefutably riskier than others, just about all types of businesses have at least some areas where they could potentially be liable. There are, however, certain types of business structures you can choose to establish that help protect your personal assets if someone sues your business and you do not have enough to cover the loss. Two such business structures include the limited liability company and the S corporation.

The limited liability company

Often, entrepreneurs with concerns about protecting their personal assets choose to launch limited liability companies, which can help guard your personal assets. Limited liability companies are pretty easy to run, meaning they require little of you in terms of compliance requirements, so they are often a popular choice among today’s small business owners.

The S corporation

Many small business owners who wish to protect their personal assets also opt for S corporations, which, in addition to helping guard your assets, offer several notable tax and other benefits. There is more that goes into running an S corporation than an LLC, though. You need to stay up-to-date with all compliance requirements or risk exposing your personal assets.

Ultimately, the business structure you decide upon has considerable implications when it comes to personal liability. Do your research, and make sure you understand what you agree to before establishing a particular type of business.

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