Determining what legal form your business should take is one of the first questions you have to answer when starting your business. There is no right or wrong answer. The key is to understand the available options and determine what best fits your needs.

There are four main ways that you can organize your business:

• Sole proprietorship
• Partnership

Benefit One: Limited Liability
The big legal benefit that corporations provide business owners with is liability protection. What this means, practically speaking, is that the business owners are not liable for the debts of the business merely by virtue of their ownership.

However, to best understand what this limited liability protection means, you need to consider the situation that exists with respect to businesses that are un-incorporated.

In a sole proprietorship, for example, the proprietor is responsible for all the debts of the business.

An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. The process for determining if your business needs an EIN is complicated. Below is how you can determine whether or not you need an EIN number:

If you are the sole proprietor of a company, you will need an EIN if any of the following statements are true:

• You are subject to a bankruptcy proceeding
• You have incorporated your company

The last category is the Limited Liability Company. When all requirements are fulfilled, a Limited Liability Company (LLC) is taxed as a partnership, instead of a corporation, for federal tax purposes.

However, in contrast to a partnership, an LLC may allow its owners to be involved in the management of the business without exposure to personal liability. An LLC allows you to have limited liability, reduced organizational costs, relaxed regulation, and flexible allocation of income/expenses.

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