No doubt, one of the most asked questions by the prospective business owner is "Should I incorporate?"

The legal structure you choose, corporation or otherwise, depends on a number of things, including your type of business, individual situation, goals for the business, and a number of other personal and financial factors. Before deciding what's best for you, discuss your plans with your accountant and attorney. Make sure you are prepared to describe your business plans in some detail. It will be money and time well spent. Making the right choice can help you avoid a mistake that can cost you big in terms of possible future liability.

Here are the choices available for operating your business:

Sole Proprietorship.  
The vast majority of small and home-based businesses operate as a sole proprietorship. There is no limited liability - the owner is solely responsible for all debts. Business profit or loss becomes part of the owners personal tax returns. Major advantage: Simplicity.

Regular ("C") Corporation.
Limited liability is its major asset. Profits are taxed at corporate rates (lower than personal rates). Salaries paid to owners is subject to their regular personal tax rate. Major advantage: Relief from personal liability.

S Corporation.  
Limited liability as with a "C" corporation but with some additional restrictions that only affect a few. Business profit and loss is passed through to the shareholders' personal tax returns. Major advantage: Profit and loss pass through to personal returns.

Limited Liability Corporation ("LLC").
A fairly new entity that offers limited liability like a corporation and the tax advantages of a partnership and S-corporation. (No Federal taxes and personal pass through of losses). Major advantage: Limited liability PLUS profit and loss pass through to personal returns.

General Partnership.  
No limited liability. Each partner reports profit and loss on their personal tax returns. Major advantage: No Federal taxation.

Limited Partnership.  
Limited partners enjoy limited liability but the general partners (at least one is required) do not enjoy limited liability. Major advantage: Limited liability for the limited partners.

Except for the sole proprietorship, each of these legal entities can be complex to setup. It is very important that you engage the services of an attorney and/or CPA to ensure no mistakes are made. There is no "best" choice. Oh, and by the way, the answer to the question, "Should I incorporate?," is maybe but unlikely.

Robert Sullivan is the author of "The Small Business Start-Up Guide", and "United States Government - New Customer!" He frequently lectures on starting small businesses and is a guest on CNBC and NPR as a small business expert. His books may be ordered toll-free by calling 1 800 375 8439. Visit "The Small Business Advisor" at http://www.isquare.com