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Why Should I Incorporate My Business?I get asked this all the time. Why should I incorporate my business? This is one area of the law that is very clear. You should incorporate your business for risk purposes. Much like a marriage, we all start our businesses with a certain glow and the total belief that we will be a total success. While that may turn out to be true, the simple fact of life and business is there are plenty of bumps in the proverbial road. These bumps can come in the form of everything from a period slow business like we saw with the Great Recession in 2008 and 2009 to lawsuits, tax audits and a host of other issues. Incorporating your business is one way to limit the damage associated with these risks. Let’s take a closer look. I start a business in 2002. Everything is going really well. Then 2008 hits. My customers start closing their doors. The ones that are still in business are not paying their bills. I’ve suddenly got my own problems and it looks like my business will fail. If I’ve incorporated, the debts of the business stay with the corporation or limited liability company. Put another way, the people the business owes money to can’t come after my personal assets. If I have not incorporated, they can. This alone is the number one reason to incorporate and, frankly, you are nuts if you don’t. Do you really want to risk your home, investments, savings and peace of mind? Trust me, you do not. The second reason you want to incorporate your business is to shield yourself from the risk of lawsuit liability. It costs a couple of hundred dollars to file a lawsuit. If you don’t incorporate, you face the prospect of being liable for any verdict in favor of the suing party. More so, you are going to have to pay for a lawyer. Much of this can be handled with a liability insurance policy, but most people don’t realize that such policies have a cap on what they will pay. Let’s assume you get sued and a verdict of two million dollars is returned. You only have one million in insurance [a common amount]. Guess who is responsible for the rest of the verdict? You! There are many areas of the law that involve judgment calls when it comes to dealing with them. This is not one. Protect yourself! Limit your risk! Incorporate your business. ******************************** The above discussion is intended to be a general commentary on legal issues. Each situation is different and this article is not intended as legal advice for your specific situation. Further, nothing in this article is intended to create an attorney-client relationship. If you have additional questions, please contact me. |
