An LLC is the most popular business formation in most states. It offers the flexibility of being taxed as a corporation or partnership, and it reduces the personal liability risks associated with incorporating. For example, If a corporation is sued for damages (and loses) those damages are paid directly by the business entity and not directly by shareholders. By contrast, if an LLC is sued for damages (and loses), these damages may be paid by members in proportion to their ownership interests. To reduce this risk further, members may want to purchase an umbrella insurance policy that covers them personally while they own part or all of a business.