There are several legal entities available to you to protect your assets, both personal and business, when you are developing your new home based business. These entities include the Nevada corporation, the family limited partnership, the limited liability company, the living trust, and the retirement plan.
One of the best vehicles to achieve asset protection is the Nevada corporation. The definition of a corporation is a separate legal entity created under the authority of the laws of the nation or state. Then, why do you need a corporation or separate legal entity? The reason is that the corporation can deal with undesirable situations that might occur is this litigious society. Thus, the corporation can be sued and not you personally, thus protecting your personal assets.
Now, where you set up your corporation is very important because of the advantage that some jurisdictions provide.One of these jurisdictions is in the state of Nevada. This state has created an environment for protecting assets, some of which include: no state corporate tax,low annual fees, one person corporations, directors are not required to live or hold meetings in the state of Nevada , and most important case law that prevents piercing of the corporate veil.
Probably the fastest growing legal entity is the limited liability company or LLC. The reason why is that there are several advantages to the small business owner when you have a LLC. These include: all members of an LLC maintain limited liability as opposed to a limited partnership which requires that one member of the partnership be personally responsible for the debts of the partnership, an LLC is not responsible to maintain record keeping and book keeping formalities, the liquidation of a LLC is generally tax free, a LLc is not limited to the number of members that it can have as opposed to a S corporation that is limited to 75 members.
The other legal entities that were mentioned in the first paragraph are, of course, available to you, but in my mind and experience a LLC created in the state of Nevada is the best combination for the small home based business owner to achieve the best asset protection.