For tax and legal reasons, you’ll need to decide what form your business will take. Generally, businesses fall into one of these broad categories: sole proprietorship, partnership, corporation, S corporation and limited liability corporation. Your choice of business form will affect your exposure to personal liability, how you draw profits and pay taxes, your ability to raise capital and how you run the business.

Here’s where professional advisors play a key role. Consult with an attorney and an accountant before you decide what form to use for your new business. They can advise you on tax advantages and which form offers you the best protection of personal assets.

A Sole Proprietorship is generally the quickest, easiest way to start a business. Check with a knowledgeable attorney about any licensing or other legal requirements. In a sole proprietorship, profits and losses are included on your individual tax returns. On the downside, if someone sues your business, they may be able to sue you personally, and your personal assets are subject to those claims.

A Partnership is an association of two or more people working as co-owners of a business with the intent of making a profit. The involvement of two or more people in the business, however, generally increases the complexity and the amount of paperwork. Also, general partners can share unlimited liability, and each is usually responsible for the acts of the other.

A Corporation is a legal entity that functions somewhat like an individual, legally and for tax purposes. Liabilities are held by the corporation, minimizing the personal liability for owners. The corporation operates as a business and can be owned wholly or partially based on registered certificates called stock. To set up a corporation, you must file an application for a legal name, pay a corporate franchise fee to the state in which you file, appoint a board of directors and corporate officers, and keep minutes of periodic meetings of the board.

There’s a unique type of corporation—called an S Corporation—that provides the advantages of a corporation but, unlike a corporation, is treated for income tax purposes as a flow through entity. Income is reported individually by the owners or stockholders on their personal income tax returns. Also, the owners may deduct the corporation’s losses against other sources of income. If your new business will have fewer than 35 stockholders, you may want to talk with your accountant and attorney about this option.

Another alternative is a limited liability corporation, in which income and income tax are distributed among partners, but the partners are not personally liable for debts. If you are interested in setting up such a corporation, be sure to consult a knowledgeable attorney.