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Form an Entity to Protect Your Business

Lawsuits are pretty much a part of life in the business world these days. This effectively means every business should be protected by some form of entity. As you can guess, some entities are better than others.

The decision you are faced with is often referred to as the incorporating decision. This is a bit of a misnomer. Much like soda is often called Coke regardless of the brand being consumed, incorporating is used when forming a business entity.

As a business owner, you are faced with a wide variety of choices when it comes to business entities. Each has strengths and weaknesses. Some have been around forever such as the corporation while others are new.

Ironically, the most popular form of business entity is not an entity at all. It is the sole proprietorship. It is a dangerous form of business. As the business owner, you are exposed to personal liability for business debts.

What if you have two owners of an unincorporated business? The default designation is a general partnership. The tax situation is a bit better, but liability is a big problem. You are personally responsible for debts and lawsuits of the partnership.

There are some advantages to a partnership. While you are exposed from a liability perspective, the tax situation isn't too bad. The partnership does not pay taxes like a corporation because they flow through to the owners.

A relative new and popular entity is the limited liability company. Referred to by its abbreviation LLC, this entity offers the flexibility of a partnership and the liability protection of a corporation.

When something is touted by politicians as an answer, one should be wary. The same holds true for the LLC. Yes, it offers flexibility and asset protection, but it also comes with outrageous taxes and fees that make it a less attractive choice.

The corporation is our next subject of discussion. It is the oldest formal business entity. It provides ironclad liability protection when run correctly. This means people that invest in the entity are not personally responsible for its debts.

All is not good when discussing the corporate entity. Before choosing a corporation, you need to recognize there are a ton of formal rules that must be followed. Most entities end up retaining a busines attorney, which costs money.

To determine the best choice for your business, it is worth slapping down a few dollars to talk with a CPA and attorney. General discussions about business entities are great and all, but you need advice about your specific situation.

Article Source: http://www.find-investment-advice.com

If you need to incorporate in California, contact Richard A. Chapo at SanDiegoBusinessLawFirm.com.

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