Here’s why you should think about incorporating your small business.
Whether you are starting a new business or have been running a business for years, you can and should incorporate your business, for several reasons.
From a legal perspective, the most important reason to incorporate is to limit your liability. Forming a corporation or limited liability company (LLC) creates an imaginary bubble around your business. That bubble is referred to as the “corporate veil” – sounds very fancy doesn’t it? The bubble or corporate veil separates you from your business. It makes your business a separate legal entity, and that’s important for a number of reasons.
At Levine-Piro Law, we handle quite a few cases on behalf of personal injury plaintiffs. One of the most important considerations is whether we can actually recover against someone, i.e., can we reach assets that can be used to make our clients whole?
As a business owner, you never want to be on the receiving end of a lawsuit and have your personal assets available to a plaintiff. If you simply operate as a sole proprietorship, which you might hear called a “d/b/a,” your personal assets are your business’ assets. If I sue your business, I am suing you, and your bank account, home, and car can be reached and potentially sold if I win a lawsuit.
Similarly, if you aren’t incorporated and you need to file bankruptcy, you will be filing personal bankruptcy, once again placing your personal assets in jeopardy.
In short, without incorporating, there is no difference between you and your business. You are one and the same.
If you incorporate, regardless of the form, you are shielding your personal assets. So, if you are an LLC and your business gets sued, your personal bank account, home, and car cannot be reached; only the LLC’s assets are at stake. The only exception to that is if you don’t play by the rules, if you comingle business and personal funds, or use your corporation for shady purposes, someone might be able to “pierce” that corporate veil and get through to your personal assets. But that’s a high bar. In most cases, your personal assets will be safe. That also means that if your business goes under and you need to file for bankruptcy, your business can file for bankruptcy, rather that you doing so personally.
When you decide to incorporate, you will want to consider whether to become a corporation or an LLC. For many small businesses, an LLC is the best choice because of its flexibility, but this is a discussion you should have with an attorney. And this is a great time to have that discussion. If you incorporate now, you will be up and running for the new year, which is right around the corner. So for those who have been thinking about this for a while, this would be a great time to call Levine-Piro Law, P.C. at 978-637-2048 to schedule a business incorporation consultation.