For the small business owner or self-employed person, both the Sole Proprietorship and the General Partnership put you in the world of Unlimited Liability.
How do you move from the world of Unlimited Liability to Limited Liability? By forming a “C” Corporation, an “S” Corporation, or a Limited Liability Company (LLC).
For now, I’m leaving the Limited Partnership out of this discussion. I’m assuming that you want a say in the day-to-day management of your business.
If so, then both the General Partnership and the Limited Partnership are not a good Choice of Entity for you.
Why is that? Because if your business is a General Partnership, then you automatically have unlimited liability. And if your business is a Limited Partnership and you want management control, then you’re going to have to be the General Partner, and again, you’ll have unlimited liability.
There are certainly business situations for which the Limited Partnership is a “good fit” (for example, if real estate is involved). But that’s beyond the scope of this article.
So, back to my original question:
How do you move from the world of Unlimited Liability to Limited Liability? By forming a “C” Corporation, an “S” Corporation, or a Limited Liability Company.
Having made such a bold statement, let me also say this: I am a firm believer that when it comes to this Choice of Entity issue, one size does not fit all!
So let me add a strong disclaimer:
There certainly are situations where a “C” Corporation, an “S” Corporation, or a LLC is not appropriate.
But generally speaking, for many Small Biz Owners and Self-Employed People, one of these three entities is often times the best fit.
If you want the protection of limited liability, you’ve got to choose one of these three entities. Remaining a Sole Proprietor or a General Partner just doesn’t make much sense — you are putting yourself, your family, and all your personally owned assets at risk.
Wayne M. Davies is author of 3 tax-slashing
eBooks for small business owners and the self-employed. For a
free copy of Wayne’s 25-page report, “How To Instantly Double
Your Deductions” visit http://www.YouSaveOnTaxes.com
