So you are thinking about starting your own business-being your own
boss, but you are worried about exposure and tax issues and how to protect
your personal assets. What are your options and what best meets your goals?

There are several options to consider. You can create a limited liability
company, a stock corporation, a partnership or a DBA (doing business as).
Each option gives you a different level of protection, tax benefits and ways to
operate the new venture.

The most common option may be a limited liability company (LLC)
which can have one or more owners or members. An LLC is relatively
inexpensive to create and simple to operate. Properly created, it will give you
personal protection from any debts or problems your new company may
encounter. Creditors can go after the LLC assets but not your personal assets,
for example your home. Should you need to borrow start up money for your
new business most lenders will require you to personally guarantee the loan
as your company will likely have few assets. Any income you earn, or debt
accumulated, can be claimed by you personally in filing your own tax returns.
There will not be double taxation.

Some accountants will steer you towards establishing a stock
corporation even though you may be the only stockholder. This can provide
the same level of personal protection from creditors as the LLC but it is often
more complicated to create and operate, involving more required paperwork.
And unlike the LLC where all income passes through to the owner, in a
corporation, income is owned by the corporation thereby incurring taxes due.
Also, any distributions of income to the stockholder are also considered
taxable income, thereby creating the possibility that you can be taxed twice,
once as the corporation and then personally as the stockholder.

Are you thinking of going into business with another person? Then a
partnership might be what you consider. However, keep in mind,
partnerships provide owners with little, if any, personal protection from creditors, no tax benefits and may leave you exposed for the actions of your
partner, even if you had no involvement in their decisions regarding the
business. It is a form of business ownership with greater exposure than
either an LLC or corporation.

Perhaps you want to create a business alone, something small like lawn
maintenance, floral design or a food delivery service. You can be a “do
business as” (DBA) operation with you as the owner. The process to create
such a business is fairly simple, create a name for your business, complete the
required paperwork and file it with your local town clerk. All income and
expenses pass directly through to you for tax purposes. Any issues with
creditors are all your responsibility. DBA operations offer simplicity but no
protections for you personally and no tax benefits.