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Choosing a business structure that limits personal liability

On Behalf of | Jan 16, 2018 | Business Law |

If you are looking to create your own small business, it is important that you learn to recognize the various ways in which your customers, clients or what have you may be able to hold you liable. Virtually every type of small business has at least some degree of risk, and this holds true even if you do not plan to open a business where risks are clear, such as a construction entity or food service company.

Depending on the type of business formation type you ultimately create, people who sue your business for some reason or another may be able to come after your personal assets. There are, however, certain business formation types that offer some level of personal protection if someone files a lawsuit against your company.

The S corporation

A favored formation type among those interested in minimizing personal liability, the S corporation also offers benefits when it comes time to file your business taxes. Note, however, that there is some red tape involved in creating this type of structure. In addition to filing annual paperwork, your entity must also have a board of directors in order to qualify as an S corporation.

The limited liability company

Another business formation type that protects your personal assets is the limited liability company. Unlike the S corporation, which restricts the number of business owners a company can have to 100, an LLC does not dictate how many business owners you can have. Additionally, LLCs are typically simpler to operate than S corporations, because they do not have as many requirements in terms of filing paperwork and such.

Ultimately, the business structure that will best fit your unique needs will depend on a variety of factors, but if minimizing personal liability is one of your priorities, you may be able to do so with an S corporation or an LLC.