Liability Protection: The primary benefit of entity formation is liability protection. Either an LLC or a corporation will allow you to separate your personal assets from your business assets. If you incur a liability in your business, only the assets of the business will be at stake. While that may still be significant, you can protect your personal assets, such as you home, stocks, retirement accounts, etc. However, you must properly set up your entity and properly run the entity in order to maintain that protection from personal liability. If you use an on-line service to set up an entity you will not get the advice or assistance that is necessary beyond simply setting up the entity.
Choice of entity: The choice of entity type is dependent on a number of factors that should be discussed with legal and tax professionals. Again, on-line services don’t help you make this choice. The nature of the business is the first consideration. For example, an LLC is generally preferable for investment and passive-type businesses, such as the ownership of investment or rental real estate. A corporation is often preferable for businesses that will pay salaries and benefits, particularly owner salaries and benefits. Other tax and accounting issues should be considered, such as how the entity will be capitalized (financing, investors, or owner contributions of money or property) and how profits or losses will be allocated. The number of owners, the level of involvement of each owner, and the management structure of the entity are further considerations.
While the most popular and commonly known entities are corporations are limited liability companies. However, there are other entities that may be more suitable for specific purposes, such as partnerships, limited partnerships, and business trusts.
Choosing the appropriate entity can be a complex decision involving tax, liability, estate planning and operational considerations. I take a comprehensive approach to advising my clients on the right choice of entity for their particular business. I also stay involved after formation of your business, and I am available to serve as registered agent and to assist with operational or legal issues that may arise at any time.