Starting a New Business? Choose the Right Entity

When you set out to start a new business you’ll need to decide early in the game if you wish to proceed as a sole proprietor or as a fictitious entity such as a LLC, S Corp, C Corp, or Partnership.

If you go the sole proprietor route you won’t be operating under a corporate shield. Notwithstanding, you may have a dba (“doing business as”) name for your enterprise rather than your actual name. As a sole proprietor you are personally responsible for the debts of the corporation. If you get sued, the complaint, which starts the legal action, will name you as an individual.

A fictitious entity provides some legal liability protection. It’s like armor for doing business. As long as you comply with corporate formalities you reduce the odds of being held personally liable. If you fail to follow corporate formalities, however, there is a greater chance that a creditor or plaintiff in a lawsuit can “pierce the corporate veil” and get to your personal assets. If the corporate veil remains intact, the creditor or plaintiff can only get to the assets of the company.

If you want the protective armor of a fictitious entity there are several types to choose from. These include a Limited Liability Company (LLC), Limited Partnership, C Corporation, S Corporation, or partnership arrangement. This is where you should have the advice of a CPA familiar with the various tax advantages and disadvantages of each. If you use a lawyer to form the entity it’s best if he or she collaborates with a qualified CPA.

InSource Law recommends that you retain a CPA and lawyer who understand the importance of collaboration. Online services like LegalZoom may be inexpensive, but if your serious about personal asset protection and tax advantages, get professional advice. By choosing the right business entity you can mitigate personal exposure while choosing the most advantageous entity for tax purposes.


Kevin Walsh

Lead Attorney & Owner

1Source Law LLC



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