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Business formation types that limit personal liability

As someone looking to establish your own business, you would be wise to figure out where your liabilities are so that you can determine how to best protect yourself and your personal assets. Some entrepreneurs mistakenly believe that they face few risks with regard to liability because of the nature of their businesses, but in truth, virtually every type of business has at least some areas where someone could attempt to hold them liable.

If limiting personal liability is one of your priorities when establishing your business, you may want to consider creating one of two types of business structures: either the limited liability company or the S corporation.

The limited liability company

The limited liability company, as its name implies, helps limit your liability and protect your personal assets, and as an added bonus, it is a relatively simple type of business structure to operate. You could potentially run into problems down the line with a limited liability company, however, if you decide to seek investors. Most investors prefer to put their money into established corporations, as opposed to limited liability companies.

The S corporation

While establishing any corporate business structure can help you guard your personal assets, many entrepreneurs decide to create S corporations because they offer several notable tax benefits. However, operating an S corporation typically involves more effort than operating a limited liability company, and you will have to comply with certain requirements, such as filing annual paperwork and holding annual board member meetings.

While both of these business types can help you protect your personal assets, you will need to exercise care to make sure to stay current on all compliance requirements in order to keep yourself protected. Compliance requirements might include anything from filing paperwork at regular intervals to paying annual renewal fees, and failing to adhere to all compliance requirements can expose you to potential liability.

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