Consider liability when choosing business structure

Consider liability when choosing business structure

On Behalf of | May 27, 2020 | Business Formation & Planning, Business Law |

When choosing a structure for your new business, one of the most important things to consider is liability. The amount of personal liability you take on will determine whether you will be held liable for damages that occur during the operation of your business or any incurred debts or obligations.

Formation is easy with a sole proprietorship and allows you to have full control of the business. However, your personal assets and liabilities are essentially also your business assets and liabilities. In other words, your house, car, and personal bank accounts could be on the line if there is a lawsuit filed against your business.

One of the best ways to limit your personal liability is to choose a limited liability company (LLC) as your business structure. Owners, managers, and the LLC itself will be protected from certain types of personal liability under this business structure. LLCs keep your personal assets separate from the business, and while you must pay self-employment taxes, business profits and losses can go through to your personal income without incurring a corporate tax.

Corporations are often the best way to protect owners from personal liability, but they can be expensive and more difficult to form than other structures. C-corp profits are subjected to double taxation, but is completely separate from its owners. S-corps avoid double taxation, and also protect shareholders from personal liability like C-corps, with a few exceptions. However, S-corps often have stricter guidelines when it comes to formation.

All business structures have advantages and disadvantages, so it is important to choose wisely when it comes to selecting a business structure for your business. A business law attorney can assist you in choosing the structure that best fits your needs.