One of the first and most important decisions you will face as a start-up business owner is deciding what form of business entity to own and operate for your new business venture.  Indiana law offers you several options, such as-

• a sole proprietorship or general partnership;
• a limited partnership;
• a limited liability company;
• a limited liability partnership;
• an S-corporation; or
• a regular corporation- a C-corporation.

Chances are good that should operate your new business either as an S-corporation or a limited liability company.  A few of you might form a regular C-corporation, but most start-up corporations make the S-election.  In either case, all three entities offer you limited asset protection and relative ease of operation.  In deciding which structure to use, you, as a business owner, should consider a variety of general factors and also the circumstances unique to your business, you and any co-owners, and your business opportunities and challenges.

Before forming a new business entity, a good business attorney will spend time with you to discuss and consider factors such as these-

• Will the business consist of an operating entity or a holding company?
• What are the likely tax liabilities arising from the business?
• If an operating entity is chosen, can FICA taxes be minimized?
• How will the business be financed?
• What is the exit strategy?
• What business risks are being avoided?
• Do the owners and managers have the requisite training and vigilance to maintain a more complicated structure?
• What are the costs, benefits and burdens of creating a particular business structure?

Please remember that a business should be operated as a limited liability entity to protect the assets of the owners. That is the central reason to form a business entity.  The web is full of bad advice suggesting that other motives are appropriate.  Ignore that bad advice.

Sole proprietorships and general partnerships offer no protection to their owners or to the entity itself.  By contrast, limited liability companies, limited partnerships and corporations are limited liability entities which provide significant but limited protection from liabilities arising from the business’ operations.  Generally, what is at risk for you, as an owner, is the value of the investment you made in the entity.  Business lawyers refer to this as “inside out protection,” because the liabilities arising inside the entity will not reach the assets of the owner held outside of the entity.

Of course, selecting the right entity is just the first step in this process.  Careful drafting of documents, the proper filing of documents with governmental offices and establishing processes and procedures to follow the so-called “corporate formalities” are equally important steps in limiting the liability risks to you- the business’ owner.  This entire process starts with the list of factors relevant to selecting the right entity.

If you are starting a new business or are unsure whether your current entity is properly structured, contact your business attorney to review the issues raised in this article.

Matthew Griffith is an Indianapolis attorney, business coach and founder of the GRIFFITH LAW GROUP LLC -  www.IndyBizLaw.com.  His is a principle, director and co-founder of the business coaching firm, Xpedishon Coaching, LLC – www.Xpedishon.com.  He also co-counsels client matters with attorneys at Vivo Law Offices, LLC through its virtual law service-  www.IndianaVirtualLaw.com.