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Starting your own business can be exciting and scary. You might not know where to start or what kind of entity to form. You want to give your business the best start possible in order to make it in today’s economy by forming a limited liability company. At the same time you need to protect your personal assets and keep them separate from your business. The options for forming your own business are:
- Sole Proprietorship
- Partnership
- Limited Liability Company
- Corporation
The easiest and most cost effective to forming a limited liability company is a sole proprietorship. However, you miss out on a lot of the benefits of being a business owner. If you form your business as a sole proprietorship you miss out on having your personal assets protected if your business were to be sued. Forming a limited liability company provides you with many more advantages of owning a business.
Forming a limited liability company provides you with personal asset protection. Your assets are protected in the event your business is sued or if your business is in debt. The creditors cannot seize your personal assets to pay for your business debt. Personal asset protection is probably one of the best benefits of forming a limited liability company.
A Partnership is the simplest business entity for more than one owner. Unlike forming a limited liability company a partnership does not protect personal assets. All partners will be personally liable for the debt of the business when you forming a limited liability company. A partnership is not a tax entity. Each owner or partner files the losses or profits on their personal tax returns. When forming a partnership you don’t need to file any paperwork or create a legal contract. When forming a limited liability company there are state requirements that need to be followed and you must file articles of incorporation to be recognized as a separate legal entity.
Forming a corporation is usually the right choice for larger companies. There are a lot more restrictions and requirements. If you are the only owner or your company is going to remain a small business you would not benefit from forming a corporation. If your company does expand and would benefit from becoming a corporation, that can always been done at a later time.
Although there is paperwork involved and more fees to become a limited liability company, the benefits usually outweigh the start up costs. It’s worth researching if forming a limited liability company is the right choice for your business. |
