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.

In making the decision, it is important that you understand some of the verbiage commonly, and incorrectly, used. You will be told this is all about incorporation, but it really means the choice between a corporation, LLC, and other entities.

Picking a business entity is difficult for most people. The problem is each option offers pros and cons. Who is to know which one should be selected? Well, let's take a closer look at the choices you have.

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.

The second most popular choice is the partnership. This occurs when two or more people pursue a business venture together. Many people are in partnerships and don't even know it. As with the sole proprietorship, there is no liability protection in a partnership.

For many businesses, flexibility and taxes are two big issues. They are also positive aspects of a partnership. There are no corporate formalities and taxes flow through to the partners so the entity does not have to pay taxes.

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.

The LLC was touted as a revolutionary new business entity that would make life easy for small businesses. It has the characteristics of it, but the entity is disfavored by many professionals. There are simply too many taxes and fees associated with it.

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.

On the downside, a corporation requires a fairly extensive number of formalities to be followed. For many small businesses, this means an attorney is required. Attorneys cost money, which is often something many small businesses do not have plenty of.

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.

Richard A. Chapo helps businesses incorporate in California via his site at SanDiegoBusinessLawFirm.com.

Article Source: http://www.therealarticles.com

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