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    Type of entity for a business to avoid personal liability

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    If a new business owner was operating a sole proprietorship and wanted to avoid personal liability, what type of entity would you suggest?

    If that same business owner stated that they needed to raise capital for their small business, what ideas could you give them?

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    For those states which allow a single member Limited Liability Company, an LLC is a good choice. It can be a transparent entity with limited liability, but not in all states. Check your own state laws for applicability. The term 'transparent' means that the entity can be reported as part of an individual's Form 1040 income tax return. It is sometimes called a disregarded entity.

    An LLC is a new entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead IRS uses the tax entity classifications ...

    Solution Summary

    In a 375-word solution, the response explains the choices for legal forms together with advantages and disadvantages. The explanation takes into account that there are differences between states with respect to their laws for formation of some entities, but also explains how the IRS treats entities. There is a conclusion for the preferred business form.