Bizstats.com reports that there are approximately 5 million active U.S. corporations accounting for over $17 trillion in revenue annually. Add to that the knowledge that the average person will be sued five times in their lifetime, and you would obviously grow a little concerned over starting your own business. How can you safeguard not only your personal assets, but also your business, from potentially frivolous lawsuits or significant judgments? The answer lies in utilizing the current laws to their fullest extent.

Organizing and conducting your business as a corporation, limited liability company, or even a limited partnerships entity provides considerable personal liability protection. Business owners tend to prefer the corporate form of doing business because of the high level of safeguard to personal assets it affords its owners and shareholders against potential claims of creditors. Sole proprietors and general partners in a partnership are personally liable for all debts and obligations of the business. In a corporate structure, the owners and stockholders are typically not liable for these same ordinary debts and obligations. For purposes of this discussion, we focus on the corporate business structure.

Another potential safeguard is to incorporate your business in a state that provides the highest level of asset protection available to you. Delaware, Wyoming, and Nevada are states noted for their business-friendly environment. Nevada leads the pack in its advocacy of maintaining the privacy of corporate ownership and in protecting a corporation's owners for potential liability. Nevada law allows the formation of a corporate structure in which investors and owners can remain completely private. The Supreme Court of Nevada has consistently stood strong on this high level of corporate privacy, even in some situations when the corporation has failed to adhere to the basic corporate formalities.

In 1987, the Nevada Legislature passed a law that permitted corporations to place provisions in their articles of incorporation that would eliminate the personal liability of officers and directors to the stockholders of a Nevada corporation. (NRS 78.037). The Nevada Corporate Code also allows the indemnification of all officers, directors, employees, stockholders or agents of a corporation for all actions that they take on behalf of the corporation that they had reasonable cause to believe was legal (NRS 78.751).

It is important to do thorough research when setting up your corporation. Review a state's laws regarding owner and shareholder liability, and indemnification before you decide in which state you want to incorporate. It can have a tremendous impact on protecting your assets and guarding you against future liability.