The Importance of Incorporating your Business

incorporation
Are you required to incorporate your business? No.

Should you incorporate your business? It is highly recommended.

Massachusetts is full of small businesses many of which are not incorporated. Many small business owners tell us that they cannot afford to incorporate, and I do understand that, as the fees in Massachusetts are higher then other states. However, my response back is to ask if you can afford to not be incorporated?

The main benefit to incorporating is that it separates your business assets from your personal assets. Legally, a corporate veil is formed. Think of the corporate veil as an invisible force field that protects business owners from personal liability. Let us say Person A owns a small store in a quaint town. Person A also owns a house and a car. One day Customer B slips and falls in Person A’s store and sues Person A for the injuries he sustained. While Person A does have insurance, the judgment against Person A’s store is greater then the insurance policy person A has and because person A never incorporated, he is personally liable for the judgment against the business. It’s possible that Customer B can recover the rest of the judgment (after the insurance payment) by putting liens on Person A’s car and home and potentially forcing a sale to satisfy the judgment. Had Person A incorporated his business, the judgment would have remained against the business and Person A would not have been personally liable for the judgment, leaving Person A’s home and car safe from liens.

If you think of how great a judgment could be, the costs of incorporating are very minimal. In Massachusetts, a Limited Liability Company (“LLC”) is one of the most popular forms of incorporation because of the flexibility it provides. To form an LLC, the initial filing fee of $520.00, and annually there is a $500.00 fee subsequent years to the Secretary of State to file annual reports. If you think of the protection $500.00 a year provides, it’s a very reasonable fee.

If you own a business and you are thinking of incorporating it is always advisable to meet with an attorney to discuss the different entity options available and the potential benefits of each as they relate to your business. For further reading on incorporating in Massachusetts visit the MA Secretary of State Corporate Divisions Website.

As always Levine and Piro offers free consultations to discuss your legal needs so call, (978) 637-2048, or email us today.