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Business formation types that limit personal liability

On Behalf of | Dec 13, 2019 | Firm News

How you establish your small business has far-reaching effects. It ultimately plays a role in everything from how you stay compliant to how you pay business taxes. While there are several different elements you should consider before determining what type of business structure may serve you best, there are certain types that may prove better for you if you are looking to protect your personal assets.

More specifically, some business types offer more protection for your personal assets than others, meaning that, if someone sues your business, you are not going to have to worry about potentially losing your home, car and so on. Instead, certain business types help you draw a clear line between your business and personal assets, thereby protecting them against potential lawsuits or judgments. Thus, if limiting your personal liability is a serious concern for you, consider establishing one of the following business types:

The limited liability company

Any business, regardless of industry, has areas in which others could attempt to hold it liable. Establishing your organization as a limited liability company extends you some protection in this area. A limited liability company offers certain perks, among them the fact that it is typically relatively easy to manage. However, this business structure also comes with certain drawbacks. For example, you may have a difficult time finding investors for a limited liability company, should you plan to seek some in the future.

The S corporation

Frequently, entrepreneurs who wish to limit their personal liability opt for S corporations, which offer some great tax benefits. Operating and maintaining compliance with an S corporation is a bit more involved than it is with a limited liability company, however, as you must file annual paperwork and maintain an active board of directors, among related compliance requirements.

While you should avoid selecting a business structure based on liability considerations alone, you may want to research these two structures further if limiting personal liability is among your priorities.