Entrepreneurs interested in starting a business in 2022 are likely looking for capital to get their endeavor up and running. The United States Securities and Exchange Commission (SEC) Office of the Advocate for Small Business Capital Formation recently dug into this process and found that over 80% of business owners sought financial services to help build capital from large and small banks.
The split is pretty even, with 49% stating they preferred larger banks and 45% frequenting smaller banks for funds.
Once funds are in order, another important question involves business entity selection. Business owners are wise to consider the various business entities and decide which is best for their needs. A sole proprietorship requires minimal work to establish as it is essentially the default option. Although convenient, it does not offer tax benefits like some of the other business structures. The business’ tax obligations simply go through the owner. It also does not offer liability protection.
What is liability protection?
Liability protection basically means the business owners’ personal assets are separate from those of the business. With certain business entities, there is a clear distinction between the business owner’s personal assets and the business’ assets. If this distinction is present and the business faces a lawsuit or a creditor demands payment, the lawsuit or creditor generally can only go after the assets of the business.
If personal liability protection is not present, the owner’s personal assets like their private bank accounts and home could be at risk.
Which business entities have liability protection?
A limited liability company (LLC) and the various types of corporations offer some level of liability protection. Determining the risks and benefits of each and finding the right fit for the business is an important step for business owners to take early in their business endeavors.