According to a recent study, The Entrepreneur Next Door, by the Kauffman Foundation, entrepreneurship is as widespread in the United States as getting married or having a baby, with more than 10 million U.S. adults actively engaged in creating businesses.

Many choose to become consultants or independent contractors in familiar industries. Others take transferable skills like salesmanship or project management and apply them to new ventures. Some use their newfound freedom to turn a hobby into a profit center.

Selecting a business structure that works for you and your family is paramount. Many businesses start as sole proprietorships or partnerships. However, these models have unlimited personal liability for company debts. As a result, many business owners opt to incorporate or form a limited liability company (LLC) to protect their families and financial interests.

Here are the most critical items to consider when determining your business structure:

Protection of personal assets – Sole proprietors and partners have unlimited personal liability for business debt or lawsuits against their company. Creditors can attach homes, cars, savings or other personal assets. Incorporating or forming an LLC helps separate your personal identity from your business identity. Corporation shareholders or LLC members have only the money they put into the company to lose.

Pass-through taxation – For sole proprietors and partners, company profits/losses pass directly through to their personal tax returns. For corporations, profits are taxed, then the profits that are distributed to shareholders as dividends are taxed again on the personal level. This double taxation can be avoided while still enjoying the benefits of personal asset protection by forming an LLC or by electing to become an S Corporation. S Corporations and LLCs can be taxed just like partnerships.

Uninterrupted business – Sole proprietorships and partnerships may automatically end or become legally entangled when one owner dies or retires. Corporations and LLCs are enduring legal business structures. They may continue regardless of individual officers, managers or shareholders. Corporation ownership may be transferred, without substantially disrupting operations, through sale of stock.

Access to capital – Sole proprietorships and partnerships may find investors hard to attract because of personal liability. Investors are more likely to purchase shares in a corporation where they can separate personal and business assets.

Credibility with vendors and customers – Adding "Inc." or "LLC" to your company name helps your business seem larger and more established.

Remember, no matter what entrepreneurial direction you choose, the business entity you select today could impact your business in the future. You're not just picking a business structure, you're plotting a business strategy. The more information you have, the better equipped you will be to plot the right course.

*The Company Corporation is a service company. We do not provide legal advice, and our services are not a substitute for advice from a licensed attorney.

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