LLC vs Corporation: Which Business Structure is Right for You?

When you own a business, it is important to separate your business finances from your personal finances. That way, if your business ever incurs liability, your personal assets are protected. To do that, people set up different business structures. A formalized structure helps establish your business as a separate entity, limiting liability, and providing you with certain protection. However, it also comes with certain requirements that you treat the business distinctly from your own assets. There are several ways to devise these structures, and choosing the right one depends on the size, nature, and risk of your business.

There are three main ways to establish your business as a separate entity: corporations, S corporations, and LLCs. All three offer some protection for business owners. However, each has its own advantages and disadvantages. Any of them offers more protection than the most basic form of business ownership- sole proprietorship. A sole proprietorship does not establish a separate business identity, and you report all income on your personal taxes. It offers little protection for your personal assets, though you can take steps, such as getting business insurance, to help provide a lawyer of insulation for your business.

In many states, you can get a “DBA.” DBA refers to doing business as, and it is a formal registration of your business name. It allows you to open bank accounts and accept payments in your business’s name. However, it does not establish a separate legal identity for your business.

Partnerships are simply businesses with more than a single owner, which have not filed paperwork to become an LLC or a corporation. You do not need a formal agreement to form a partnership. However, having a formal agreement helps outline the rights and responsibilities of each member of the partnership. It is a good idea for anyone in partnership with anyone, and consulting an attorney ensures that your rights are protected. While doing that, the attorney will probably suggest forming an LLC or a corporation to offer additional protection for your personal assets.

You do not necessarily need a lawyer to structure an LLC or corporation. If you have a simple, start-up business with only one or two owners, you may be able to download a form to create the business structure. Some states even offer that information on their websites. However, if you have a more complex business structure, you may want to consult an attorney to custom-tailor an agreement for your business.