How does a business owner decide how to set up their business entity?

When I have a client come to my law office, and they say they are planning to go into business, usually the very FIRST question they have is: How do I organize it legally? They want to know the costs of setting up the business, AND they want to know what the "safest" form of business to set up to protect themselves from personal liability!

I then have to find out this: How many OWNERS are there going to be? Because that will tell us which entities we can choose from!

For example, if there will only be ONE OWNER, the choices narrow down to: Sole Proprietor LLC (Limited Liability Company) S-Corporation C-Corporation If there will be TWO OR MORE OWNERS, then the choices are: General Partnership LLC (Limited Liability Company) S-Corporation C-Corporation LLP (Limited Liability Partnership) Limited Partnership

Some of the entities are DANGEROUS - because there is UNLIMITED PERSONAL LIABILITY, and an owner can lose ALL or most of their life's savings and property if there is a major loss or a lawsuit against the business. For that reason - most attorneys will advise their clients NOT to chose these entities: Sole Proprietor General Partnership

We usually advise clients to set up either an LLC or corporation, in order to get LIMITED PERSONAL LIABILITY. Yes, in most states you have to pay a few hundred dollars in order to get the corporate or LLC charter from the state, but it is definitely worthwhile in most cases!

Have you or a family member or friend set up a business? Are you thinking of setting up a business in the future?

What type of entity would YOU choose - and WHY? Before answering this, please be sure to view the "handouts" on Sole Proprietorships, Partnerships, Corporations and LLC's, in the Files link.

If you have no interest in setting up a business yourself - what kind of business entities have you worked for?