Sometimes setting up a small business becomes a matter of alphabet soup. Do you prefer an S or an LLC?

That's S as in S corporation, and LLC as in limited liability company. The nuances of both were a common topic of questions at this week's small-business telephone hotline, sponsored by The Journal News and the Westchester chapter of the New York state Society of Certified Public Accountants.

The simplest and most common form of business is the sole proprietorship, in which one person is the owner and makes all the decisions. One serious weakness in the structure, however, is the unlimited liability that the proprietor faces in the event of lawsuits. All his personal assets are at stake if he loses the lawsuit and lacks adequate insurance coverage.

Both S corporations and LLCs provide some limits on liability, though they are more complicated and expensive to set up and have different rules involving taxes and other business issues. An S corporation has 75 or fewer shareholders, and profits pass directly to the owners without the double taxation problem that occurs with dividends paid by regular corporations to shareholders. LLCs are like partnerships in that profits also are distributed directly to owners. They have a limited life, usually up to 40 years.

Seek professional advice before deciding which is right for you.