Is There Legal Protection for Small Business Owners?
When you start a small business, you may do so with the purpose of creating a larger income and more work flexibility. One of the potential drawbacks of setting up a businesses is that you could open yourself to legal issues. If you set up your small business correctly, you can limit the legal issues by putting the right types of protection in place.
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Personal Liability
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When you start a small business, you may use a sole proprietorship or a basic partnership to get things going. This does not involve setting up any separate business entity. With a sole proprietorship or partnership, you file your taxes under your personal taxes and nothing separates you legally from your business. This means that if you incur any business debts, you will be held personally liable. If someone files a lawsuit against you because of business actions, you are liable for damages.
Incorporating
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Instead of leaving yourself open to business liability, you can set up a business entity. By incorporating your business, you can separate your business and personal lives as well as provide yourself with limited personal liability. When someone files a lawsuit against your business, the most that could happen is your business would have to pay a settlement and lose all of its assets. Under this arrangement, the lawsuit cannot attach your personal assets including your home or family bank account.
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Legal Entities
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To separate your business and personal liability, you can choose between several different types of business entities. One option that you may want to consider is a C corporation, however many small business owners choose to use an S corporation which allows for all business taxes to be passed on to the owner of the company. A limited liability company is another entity that you can set up which will provide you with limited personal liability.
Legal Protection
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When you decide to legally protect yourself from business claims, you must set up a business entity. To do this, you have to fill out some paperwork with your state. In addition to completing the proper paperwork, you will also have to pay a filing fee with the state. After that, you will also have to file a tax return for your business. If you have a corporation, you may also have to go through some formalities such as holding periodic Board of Directors and shareholder meetings.
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