In order to protect their personal finances after forming a company, entrepreneurs should consider filing an LLC or an S-Corporation and keep business and personal money separate.
In an article for Entrepreneur magazine, Karin Price Mueller, a personal finance expert, offered some suggestions for small business owners. In order to protect personal finances from business creditors or other company-related litigation, Mueller recommends creating the company as a separate legal entity. This can be done byforming an LLC, which is one of the most flexible business structures, or an S-Corporation, which, like LLCs, prevents owners from being held personally responsible for debts or liabilities of the business.
Mueller spoke with Barry Jones, a tax attorney with Wise Carter Child & Caraway, who advises entrepreneurs to be vigilant if they chose an S-Corporation. Jones says that if entrepreneurs didn’t carefully adhere to a myriad of technical rules the company would lose its S-Corporation status and be treated as a C-corporation.
It is important that business owners focus extra attention on avoiding situations where state law disregards corporate protections and expose personal assets. These include cases involving fraud, the mingling of company and personal assets and using corporate assets for personal use.
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