Choosing the right type of business type can save your home and other personal assets being at risk if you are named in a business-related lawsuit. Sole proprietorship Most individual owners of small businesses operate what is called a sole proprietorship. This is the cheapest way to operate with no special state filing requirements to start the business. The major problem with operating as a sole proprietorship is, of course, the personal vulnerability of the owner's assets. Running as a sole proprietorship means that George, the owner, is personally liable for any and all debts and claims made against George's Print Shop.
Personal liability is something to be steadfastly avoided if possible.
It is better to do avoid the potential for personal liability before any lawsuits have been filed against a business. Partnership A partnership is where two or more people operate a business in concert with a common goal, e.g. George and Fred, open George and Fred's Print Shop. The partnership differs from the sole proprietorship in that there is more than one person that owns and is responsible for the business. There are tax advantages to using a partnership in that income and losses of the partnership are generally passed through to the partners' tax returns directly. However, a partnership carries the same potential for personal liability of each partner as a sole proprietorship, i.e., personal assets are at risk.