Say you've made 2011 the year you're going to start a business. It doesn't matter if you're going to make art, donuts, metal parts or software – you still need to create a business form. You may have heard of LLC, S Corp, Sole Proprietorship or Partnerships. You may also be in a rush to get started running your company. Hold on a moment, read this, and save yourself some problems in the future.

'Without incorporating, your personal property is at risk for settling debt,' says Nellie Akalp, CEO of CorpNet, a legal document filing service in California. 'A corporation is like a new entity, or a new baby. It gets its own Tax ID or EIN – and it is responsible for all its debts or liabilities incurred by the business. If you were to start a business {without incorporating} and have a problem, creditors can secure judgments against you and your assets personally. You have to worry about asset protection. Those judgments can last for 22 years. Don't think you can just avoid the problem if you make a mistake.'

I recently heard the story of a partnership where one of the partners told the others he had paid taxes on behalf of the business, when he actually pocketed the money. Other partners had debts to pay personally as well as issues with government agencies like the IRS for 7 years afterwards. This isn't something to take lightly.

'These are mistakes I hear startups make,' said Akalp. 'They don't think about legalities of a business. Take the time to educate yourself and don't be afraid to start small. Don't think you don't need a corporate structure to protect yourself and your assets if you're 'just starting out.' Be responsible and take ownership seriously.'

An LLC or Limited Liability Corporation is very popular – Akalp told me they're doing five LLC filings for every Corporate filing they do. Businesses avoid the 'double taxation' situation where business pays taxes and then share holders get taxed again. S Corporations also provide this benefit – but the two entities have different requirements.

LLCs can have multiple classes of stock, less paperwork, and can have trusts or estates or foreign entities as members. S Corporations are actually C Corporations with a special tax election. They can only have one class of stock, shareholders are US residents or legal aliens only, they are limited to 100 members, and they can't have trusts or estates as members.

It is important to get the advice of a lawyer and accountant to help you figure out the form that is right for your start-up. There are other considerations. When I formed my corporation in NY, LLC publication requirements were quite expensive – potentially as high as $2000 with taxes and fees. It was one thing that pushed me towards creating an S Corporation instead.

I asked Akalp about the popularity of filing in Delaware or Nevada. She noted that unless there was a specific legal reason for your company to file there, typically the low cost of starting a company would be outweighed by costs over the long term. 'If you're physically transacting business in your state, you're subject to those state laws – so by filing to start your company elsewhere you end up being subject to two state's requirements. You have to do a 'foreign qualification' when your headquarters is in another state, you'll probably pay filing fees, franchise or annual report costs in 2 states. Don't forget that even if you're ‘an Internet company' you still have a place where you take money – and that generates tax requirements.'

Inc. has a Guide to Choosing a Corporate Form if you want to get more in-depth.

Let us know more about what you chose to do in the comments below.