Forming an LLC (limited liability company) or corporate entity does not mean that your company cannot be sued. But it makes it possible for you to obtain some protection from personal liability if it is.
"The protection -- particularly for one-person businesses -- is not absolute but is better than no protection at all, which is what you will have if you conduct your business as a sole proprietorship," said Richard M. Leisner, an attorney with Trenam Kemker in Tampa, Fla.
To maximize the protection of a corporation or LLC, make sure you keep formal business records, file your withholding and other taxes on time and separate your personal funds from your business bank accounts. Put all the company accounts and financial transactions under the corporate name -- not under your own name.
"Often, business owners think these formalities are not important, but the details are important in order to avoid the risk of a court disregarding the corporation or LLC," Leisner said.
"If that happens, it's just about the same thing as operating as a sole proprietorship."
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