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Keep liability in mind when choosing a business structure

| Aug 14, 2020 | Business Law |

When you are inspired to start your own small business, you may be excited to hit the ground running as soon as possible. However, it is important to work carefully when establishing your new business. You will want to make sure all legal aspects of starting a new business in Massachusetts are considered and met before opening your doors. This includes choosing a business structure. It is important to note that some business structures offer more protection from liability than others.

What business structures offer protection from liability?

Sole proprietorships are businesses owned by a single individual. This person will be personally liable for all the debts and obligations of the business, as a sole proprietorship does not create a separate legal entity.

Partnerships are more complex. Partnerships are owned by two or more individuals. In general, these partners are personally liable for all the debts and obligations of the business. However, the exception to this is if the business is structured as a limited partnership.

Limited liability companies (LLCs) offer more protection to owners. An LLC can be owned by one or more individuals. An LLC is a separate legal entity. This means that the owners of the LLC are not personally liable for the debts and obligations of the business.

Corporations also offer more protection to owners. C-corps, B-corps and nonprofit corporations are owned by one or more individuals, while an S-corp is owned by between one to 100 individuals. However, all corporations are separate legal entities and thus, owners are not personally liable for the debts and obligations of the business.

Liability is important when choosing a business structure

It is important to keep liability in mind when deciding on a business structure. However, many new business owners may not be familiar with these choices and it may be difficult to know where to start. Moreover, freedom from liability may not be guaranteed in all situations. For these reasons, it can help to seek legal advice from the get-go, to avoid making mistakes early on that could lead to problems further on down the road.