Getting your business set up is a daunting task for the best of us. Somewhere between making the decision to actually start a business and filing the paperwork, lies the most important choice you will make for your business: What type of business you will ultimately be. Sole Proprietorship or Corporation? Each has it's merits and pitfalls. Like any good business person knows, every decision should revolve around money. After all, you want to be in business to make money, not lose it. This is my way of making this decision as easy as possible. This should not be used as a substitute for legal advice. Laws vary from state to state. You will need to look up the statutes in your state to ensure compliance. Some states (like Texas) can charge you with a crime and/or levy penalties for operating without proper permits and licenses. It is ill advised to operate without permits and licenses. It can lead to complete financial and personal ruin.
The goal here is asset protection. If you engaging in low liability activities, sole proprietorship is the way to go. It's much more simple to run than a corporation. Even though your personal assets are exposed to risk, the risk should be low enough as not to cause complete financial ruin. Carry an insurance policy to cover any mishaps and you should be golden. The good news is, you can easily do this yourself.
If your business engages in activities that have the potential to cause great damage or is vulnerable to litigation, forming a corporation is your best bet. LLCs, LLPs, and Corporations are all "limited liability" entities in Texas. Risk exposure is limited to company assets and protects your personal assets. This option is also a logical step up for sole proprietorships that become very profitable or want to take on public investors. These entities are complicated, and require regular filings with the state. Consult an attorney to ensure full compliance with applicable laws.
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