Why You Should Form a Business Entity
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Summary: Avoiding personal liability is a good reason to do business through a corporation or LLC. There are also potential tax benefits.
Personal liability should be a serious consideration for anybody conducting a business of their own.
The Risks of Operating without an LLC or Corporation
If you conduct business for yourself, and do not have any type of legal entity such as an LLC or Corporation under which you conduct your business, you are conducting business as a Sole Proprietorship (solo) or Partnership (multiple partners). The owners of a Sole Proprietorship or Partnership are personally liable for the actions of the company, which can include actions of partners or employees. Therefore, an employee or partner's mistake or misconduct can result in personal liability for yourself and indirectly for your family. It isn't worth losing your house because of a bad employee.How Do You Avoid Personal Liability?
By establishing an LLC or Corporation under which to conduct your business, that entity can shield the owners from personal liability and protect your personal assets such as your house, car, and investments. An LLC or Corporation is easy to setup, but there are certain formalities which must be followed to ensure that the 'corporate veil' of liability protection isn't pierced, thus exposing you to personal liability. Consult with your attorney to determine which type of entity is right for you, and how to ensure that you are conducting your business in a way that avoids personal liability.