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Choosing a business structure

On Behalf of | Mar 20, 2023 | Business |

When someone goes into business, they must make many decisions, including the type of structure they want for their business. The most common business structures are LLCs and Corporations. They have similarities and differences, but the differences are significant because they can impact individual business owners personally.

Importance of liability

Legal liability refers to the responsibility of a person or entity not to cause harm to others. The type of harm could be personal or financial. If an individual or entity is liable for the injury caused, it can result in fines and penalties. When deciding what type of business structure to choose, liability should be a pressing consideration.

Limited Liability Companies

In a Limited Liability Company (LLC), the business owners are not personally liable for any liabilities. Their investment, however, can be used if necessary.

One of the many benefits of an LLC is that the business carries the liability, as opposed to its owners. Aside from the investments that everyone put in to create the business, an owner’s assets are protected if there is an order for payment of damages against the company.

However, it is critical for LLC business owners to know that to protect their assets from liability, they must keep them separate from the business.

In an LLC, the business owners share the business’s profits, but they each pay federal income taxes on whatever they bring in from that profit. However, they can write off company losses on their tax return.


On the other hand, a corporation is different from an LLC in that it has directors, shareholders and officers. Shareholders are not liable personally for any company debts, but they must also ensure that they do not mix personal assets with those of the business.

Shareholders in corporations are subject to double taxation. They pay corporate income tax and must pay any federal income tax from the corporation’s profits. They cannot write off losses like LLCs can.