When choosing a state in which to form your business entity, you need to weigh the relative advantages and disadvantages of the laws in certain states.

When choosing the state in which to form a business entity, the small business owner can pick any state and he or she needn't conduct any business activities there. But in whichever state you choose, articles of organization need to be filed with the appropriate state agency, including the name of a resident agent for service of process (i.e., for purposes of consenting to the state's jurisdiction).

When choosing the state in which to form your business entity, the simplest option for the small business owner is to form the entity in his or her home state, where, typically, all of the business activities will be conducted.

When choosing a state in which to form your business, the simplest (or cheapest) choice may not be the best choice. Another state's lower formation fee should not be the deciding factor in forming the entity there, when the owner will be doing business in his own home state as well. Clearly, the small business owner cannot avoid his home state's fee by forming an out-of-state entity, because a registration fee, equivalent to a formation fee, must be paid to the owner's home state anyway, if the owner will be doing business there.

As a small business owner, when seeking to limit liability in your business structure, a key decision involves choosing an organizational form. Moreover, selecting the state in which to form the business and then establishing the entity completes the process.

One recommended asset protection strategy involves using an operating/holding company business structure. Then, liens are used to secure any extension of credit from the owner or holding company to the operating company.

Clearly, a funding strategy that uses an operating/holding company structure and that also minimizes the amount of vulnerable assets invested in a business will not work unless a plan exists to withdraw, on a regular basis, the assets generated by the operating entity.

John, a Connecticut resident, wants to start a business in Connecticut by investing $100,000 of cash.

One recommended asset protection strategy involves using an operating/holding company business structure. Then, liens are used to secure any extension of credit from the owner or holding company to the operating company.

When using an operating/holding company business structure, liens can be used to secure extensions of credit from the owner or holding company to the operating company.

When using an operating/holding company business structure, liens can be used to secure extensions of credit from the owner or holding company to the operating company.

In terms of maximizing your asset protection planning, there are a number of funding strategies available when structuring a business using holding/operating companies. But you must be careful to balance the combination of equity and debt funding.

When executing funding strategies for an operating/holding company business structure, small business owners often strategically combine debt and equity funding to maximize asset protection planning. To secure the debt funding, the owner (now acting as a creditor to the operating company) can use liens.

When executing funding strategies for your operating/holding companies, one approach has the small business owner personally own, and lease to the operating entity, exempt assets such as office equipment, furniture, automobiles and other "tools of the trade," at least where these assets are not at a high risk of causing personal injuries. This strategy adds an extra layer of protection for business assets. If you contribute exempt assets to the business, instead of owning and leasing, you lose this extra layer of protection.

When executing funding strategies for your operating/holding company business structure, it is important to balance your equity contributions and debt load, to ensure your asset protection plans reach their full potential.

From an asset protection standpoint, there are a number of funding strategies available when structuring a business using holding/operating companies. But you must be careful to balance the combination of equity and debt funding.

In the multiple-entity approach, the holding entity is where all wealth is located within the business structure. But because the holding company conducts no business activities, it has almost no exposure to liability, and therefore these assets are protected.

A simpler and less expensive (but sometimes less effective) alternative exists to using a holding entity and an operating entity, where leases, loans and liens can be used, but with only one entity. The small business owner, himself, may act as the "holding entity," personally owing the assets that otherwise would be placed within the holding entity.

When using holding and operating companies in a multiple-entity approach, there are ways to strategically invest in the business that minimize the risk of loss.

If you consider using holding and operating companies in a multiple-entity business structure, the pioneering Delaware limited liability company (LLC) statute provides for incomparable flexibility and simplicity in operating LLCs. It clearly allows for the establishment of different classes of interests, including voting and nonvoting interests. It was so successful that six other states (so far) have passed similar statutes to date: Nevada, Iowa, Oklahoma, Illinois, Tennessee and Utah.

When using holding and operating companies in a multiple-entity business structure, your operating entity is your primary business entity. All business functions occur within that company. Likewise, all of the risks to the business will occur within that entity as well.

Using holding and operating companies is an asset protection planning strategy that helps to limit liability in your business structure.

Clearly, the limited liability company (LLC) and corporation emerge as the two best choices of all the types of organizational forms available to the small business owner, in terms of asset protection planning and limiting liability in your business structure.

When comparing the limited liability company (LLC) and the corporation, an LLC will usually be the best choice for most small business owners seeking to maximize asset protection strategies for the following reasons:

When comparing the two entity forms, and their tax implications, on the surface the corporation enjoys a slight advantage over the LLC when it comes to providing certain tax-free fringe benefits to its owners.