You may have heard about another type of business structure called a Limited Liability Company or LLC. LLCs are a very popular and relatively new business structure, only becoming legal in all 50 states in the 1980s.
LLCs offer limited liability protection. Limited liability means that the owners are not personally liable for the debts and liabilities of the business. In this way they are similar to corporations. For example, if an LLC files bankruptcy, the owner will not be required to cover the debts with his or her own money. Alternatively, a sole proprietor is fully responsible for all business debts. Of course, there are situations where an LLC owner can be held liable such as personally guaranteeing a loan, intermingling funds and violating the law. The advantage of limited liability is the main reason why authors and other small business owners choose LLC status for their business.
Example: A ghost writer was sued for breech of contract. Fortunately, he had limited liability status for his writing business. This protected his personal assets from liability while he fought the lawsuit. Only his business assets were in potential danger. (By the way, he won the lawsuit).
When to Consider Limited Liability Status
Need help deciding if Limited Liability Company (LLC) status is right for you? I recommend you contact a small business attorney and the opinion of a local CPA. I offer a business and tax consultation service for writers if you do not have a local CPA.