CHAPTER 16 Personal Business Planning Issues

How important are small businesses to America? According to the Small Business Administration (SBA), they represent 99.7 percent of employer firms and employ roughly half of the private-sector workers. Importantly, small businesses have generated 64 percent of the new jobs created in the United States over the past 15 years. These are remarkable statistics, especially when you realize that over 50 percent of these small businesses are home based.

Choosing the Right Entity for Your Business

For a business owner, one of the most important decisions you will make is what type of entity you will use to operate your business. Your primary choices include sole proprietor, general partnership, limited partnership, C corporation, S corporation, or limited liability company (LLC). This chapter focuses on your various entity choices, as well as some of the most important advantages and disadvantages of each entity type.

Let's begin our discussion with the two main reasons that entity selection is so important:

  1. Liability protection. It's unfortunate but true that here in America, we live in a very litigious society. The rule of today is, “Sue everybody … then let's sort it out!” Part of the problem is an overabundance of attorneys, and part of the problem is our legal system that encourages “lawsuit roulette,” where the plaintiff (the person bringing the lawsuit) hires an attorney based on a contingency fee (you don't pay your attorney unless ...

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