When driving down the road or flipping through a newspaper or phonebook, we often see names of businesses with abbreviations like “LLC,” “PC,” “LLP,” etc. I have been asked many times what these letters indicate. In short, the abbreviations show how that particular business is organized.

When setting up a business, it is a good idea to form a separate legal entity. This gives some protections to the business owner. That way, if someone were to sue the owner, his business assets would be separate from his personal assets, such as his home and personal vehicle. No one wants to believe they may face a lawsuit, but sometimes the unexpected happens. It is better to plan for these unexpected events before something comes up, because after is often too late.

One of the most common types of businesses is a Limited Liability Company, or LLC. This type of business setup is popular because it is flexible. One person, or multiple people, can form an LLC. An LLC can be run by the members, or can be run by managers like a corporation. The members of an LLC get limited liability. This helps protect their personal assets.

Another type of business is a Limited Liability Partnership, or LLP. In an LLP the partners are not liable for partnership obligations simply because they are partners. There is a “shield” in place. The partnership itself—that is, the business—may be liable, but the partners may not be personally liable. If a person enters a contract on behalf of the LLP and does not tell the other party that the business is an LLP, he or she could be personally liable. He or she would have to show that the other party to the contract did not rely on the partnership being one that did not enjoy registered limited liability partnership status.

Most people are familiar with the abbreviations for a corporation but might not be as familiar with Professional Corporations, or PCs. This type of business is often used by licensed professionals like attorneys, doctors, accountants, architects, and engineers. PCs generally operate like any other corporation. They can have a single director or multiple directors.

Before starting a business it is a good idea to explore options and decide what type of organization best suits your business needs. There are multiple factors that must be considered when initially setting up a business, such as: What type of business do you want to start? Where do you plan on doing business? How many people are involved? These are all starting points for determining which type of business entity is the best for your purposes.

I have only touched a few of the possibilities. The options for forming a business vary from state to state, so it is a good idea to speak with someone knowledgeable about the available options. Remember that planning ahead is the best protection for your assets.