If you're concerned about limiting your personal liability for business debts, you'll want to consider organizing your business as either a limited liability company (LLC) or a corporation. (Of course, you may have other reasons in addition to limited liability for considering these two business structures.)

This information deals primarily with the small, privately owned corporation. I'll assume that all of the corporate stock is owned by one person or a few people, and that all shareholders are actively involved in the management of the business-with the possible exception of friends and relatives who have provided seed money in exchange for stock. Because there are many complexities involved in selling stock to the public, I don't discuss public corporations.

The most important feature of a corporation is that, legally, it's a separate entity from the individuals who own or operate it. You may own all the stock of your corporation, and you may be its only employee, but "if you follow sensible organizational and operating procedures" you and your corporation are separate legal entities.

All states have adopted legislation that permits a corporation to be formed by a single incorporator. All states permit a corporate board that has a single director, although the ability to set up a one-person board may depend on the number of shareholders. In addition, many states have streamlined the procedures for operating a small corporation to permit decisions to be made quickly and without needless formalities. For example, in most states, shareholders and directors can take action by unanimous written consent rather than by holding formal meetings, and directors- meetings can be held by telephone.

Excerpted from the "Legal Guide for Starting and Running a Small Business" by Fred S. Steingold
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