Three's Company: How To Move From Unlimited Liability to Limited Liability

Author's Note:
This article is the third in a series by Tax Expert Wayne Davies on the advantages of incorporating your small business or self-employment activity.

Article #1:
It Can Happen To You:
Why Any Sole Proprietorship Is A Risky Business http://www.YouSaveOnTaxes.com/happen-to-you.txt

Article #2:
How To Avoid Double The Trouble: Why A Partnership Can Be Twice As Dangerous http://www.YouSaveOnTaxes.com/double-the-trouble.txt

Article #3:
Three's Company: How To Move From Unlimited Liability to Limited Liability
http://www.YouSaveOnTaxes.com/three-is-company.txt

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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.

All your personal assets are at risk. A business-related accident or lawsuit could literally wipe you out.

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 Partnership 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 the new eBook, "Incorporation Tax Secrets Revealed: The Ultimate Small Business Tax Reduction Strategy" http://www.YouSaveOnTaxes.com/incorp

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