Business formation types that limit personal liability

Unless you are careful when you initially set up your new business, you run the risk of exposing yourself to potential liability. The type of business structure you create ultimately determines everything from how you pay your business’s taxes to the type of paperwork you need to file to stay compliant. Thus, while there are many variables involved in picking the structure that may best fit your needs, there are two specific types you may want to consider if limiting liability is a primary objective.

More specifically, two business types that limit personal liability and protect your personal assets include the limited liability company and the S corporation. In other words, if someone sues your business and you used one of these formation types when creating it, your home, car, savings accounts and other assets will typically remain safe.

The limited liability company

Usually, business owners who have concerns about personal liability create limited liability companies, which offer a high level of protection for your personal assets. Unlike some other business formation types, operating a limited liability company is relatively easy. You can also have however many owners you would like when establishing this type of business structure.

The S corporation

Running an S corporation can be a bit more intensive than operating a limited liability company, because you will have to adhere to stricter compliance requirements. However, you can enjoy certain tax benefits, including pass-through taxation, when you operate this type of business. This is one of the reasons that the majority of entrepreneurs looking to protect their businesses through incorporation choose to create this type of structure.

While minimizing liability may be a key factor in determining the best business structure for your particular company, there are other elements that you may want to consider before you make a final decision. Keep the above information in mind while making your final decision.