Factors to consider when choosing a business structure

This article looks at the different levels of liability exposure for the four most common business structures.

For those who are starting a business in Oregon, one of the first and most important decisions they will have to make is choosing the business structure that is the best fit for their future company. There are many considerations that go into choosing a business structure, such as taxation, ownership, and control issues, but undoubtedly one of the most important considerations is liability. For new business owners, liability exposure can have a major impact on their business' future success. Below is a look at the liability consideration for four of the most common business structures.

Sole proprietorships

A sole proprietorship is easy to setup and the least regulated business structure. Most businesses that are just one-person operations are automatically considered sole proprietorships and are not required to register. But as Entrepreneur.com points out, that ease of doing business comes with a major drawback: unlimited liability exposure. Essentially there is no separation between the business' debts and liabilities and those of the owner. So the owner's personal assets can be used to pay for any claim made against the business.

Partnerships

When it comes to liability, the only difference between a partnership and a sole proprietorship is that in a partnership there are at least two owners. Furthermore, each partner is subject to unlimited liability, meaning that they are responsible for the business debts of the other partner as well as their own. So, for example, if there are two business partners then creditors can go after either partner for full repayment of any debt (rather than just holding each partner responsible for half of the debt).

Corporations

Incorporating a business has major advantages, especially concerning liability exposure. A corporation is a separate entity from the owners (i.e., the shareholders) of the company. Each shareholder is only liable for what he or she invests in the corporation, but not for claims made against the corporation itself. However, corporations are subject to far more regulation than sole proprietorships and partnerships are.

Limited Liability Companies (LLC)

Finally, a limited liability company (LLC) may provide the best blend of the liability protection of a corporation with the flexibility and control of a partnership. Owners' personal assets typically can't be used to pay for claims made against an LLC. Unlike a corporation, however, an LLC ceases to exist when one of the members of the LLC leaves the company.

Starting an Oregon business

Starting a business is exciting, but it is important to make sure that it is done right. The decisions made early on can have a major impact on a business' success or failure for years into the future. A business law attorney can help those who are considering starting a business in Oregon understand what their legal duties and obligations are, including by helping them choose the business structure that best fits their future plans.