Business Transactions

Choosing the Best Way to Organize Your Business

There’s not one business entity form that is best for all situations. The choice depends on several factors, the most important of which include your need for limited liability, your tax situation, how you want to manage your company, and the amount of paperwork you’re prepared to tolerate. You also have to consider the laws of the state – which can vary significantly - in which you organize.

Don’t Get Your Corporate Veil Pierced

Limited liability within a business context means that creditors – including people who sue your company – can only reach the assets of the business. Corporations and limited liability companies (LLCs) offer limited liability to their owners. 

There is a concept called piercing the corporate veil or setting aside limited liability. When that happens you lose the limited liability offered by a corporation or LLC and your personal assets become vulnerable to creditors. A set-aside of limited liability can occur if the company is undercapitalized, if you co-mingle personal and business assets, or if you don’t follow certain formalities mandated by state law or your own organizational documents.

To minimize the risk of a set-aside of limited liability, companies should do the following: 

• Follow the procedures specified in your bylaws, operating agreement, or other organizational documents.


• Keep your personal assets and financial records separated from business assets and financial records. This includes setting up a separate bank account for the company and paying company bills from the company bank account. Also, if you pay business expenses by credit card, it’s helpful to obtain a credit card issued in the company’s name. 


• Make sure it is the company and not the individual owners that is listed as the contracting party for all contracts dealing with the business.