Another insurance for your business would be the right entity for you.  Many businesses are well suited to be sole proprietors.  With this method you use your Social Security number and when it comes to taxes you file a Schedule C and your net income from your business is added to your personal taxes.  Works fine in many cases.

A partnership is a whole different story.  Many partnerships work just fine, but a partnership is one of the hardest entities to dissolve if the need arises.  A partnership is like a marriage.  When things are going well, everything is OK.  BUT if there is trouble in paradise, and a divorce is eminent, then a partnership can be more difficult to go through than a divorce.  From an income standpoint with a partnership, if you are a 50/50 partnership then the net income is figured out for the business and then 50% goes to you for your taxes, and 50% goes to your partner for his taxes.

An LLC might be a better option for your business.  LLC stands for Limited Liability Company.  Right in the name it says Limited Liability.  Sounds like some kind of insurance right there.  An LLC is a legal entity for your business that can be set up a few different ways.  Now, I am not a lawyer, and I am not giving legal advice.  Please seek the guidance from your lawyer.

My understanding of the legal form of an LLC is that you put your business on the line if anything happens like someone suing you for some reason, not your personal assets like your house or life’s savings.  Just the business assets can be attached.  Now, I have to also state that anyone can sue anyone for anything, but if you have an LLC unless you were completely negligent then only your business assets should be affected.

An LLC can be a one member, or multiple members.  A one member LLC would be just like a sole proprietor when it comes to taxes.  A schedule C would be used and the net income would be added to your personal taxes. 

To become an LLC you must file the appropriate paperwork with your state.  A lawyer can help you with the process and depending on your circumstances might cost anywhere from $800.00 – $4,000.00.  However, you can do it yourself online for about $100.  Might take a bit to muddle through the process, but it can be done.  If you work with a lawyer, they will help you with all the other paperwork that you need to comply with the rules and regulations.

There are other forms of business as well, but I am not going to cover them here.  Just so you have an idea of what is available a few other forms would be an S corporation and a C corporation.  A lawyer can help you understand the benefits or pitfalls of both of these entities.  My understanding is that unless you are going to grow to become a very large business, you probably do not need to incorporate.  However, some business situations may benefit greatly by becoming incorporated instead of a sole proprietor.  Do your homework!  Ask questions. Then make your decision.