Before we get too much deeper into this subject, let me share a key
piece of information with you..."in the spirit of full disclosure," as
attorneys love to say. The ideas I'm about to spell out should not be
construed - there's another legal term for you - as legal advice. Why?
Because I'm not an attorney. Actually, I'm a law school drop-out, which
means I know just enough about the law to get myself in trouble. The
ideas that follow are good ones, but you should discuss them with a
licensed attorney, ideally one who works with small and start-up
businesses.
Let's begin with what types of businesses should
incorporate and why. If your business is benign, meaning incapable of
doing any type of damage to your clients, customers or patients, there
should be no need to incorporate your business. What's a "benign"
business? Let's say you paint portraits. The chance of you physically
harming anyone with your finished product is slim to none, so there's
virtually no chance of anyone suing you for having caused them painful
injury or physical damage.
Now let's say you've developed the most
delicious BBQ sauce in all the word. Friends and neighbors who've eaten
your BBQed ribs at your home rave about it. Some have even told you you
should bottle it and sell it. That's enough to make your eyes light up
'cause there's nothing more fun than making money doing what you enjoy
doing, right? Wrong! Taking that well intentioned advice, you head for
your kitchen, cook up a batch, bottle it and start selling it.
First
of all, in most states you can't prepare food for commercial sale in a
private, residential kitchen. But it gets worse. A week later, someone
who bought a bottle and used it gets food poisoning and decides it was
your BBQ sauce that made him or her sick. Maybe it was, maybe it wasn't,
but they decide to sue you for the cost of their doctor and hospital
bills, their time off from work and anything else they can put a price
tag on. If you didn't incorporate your business, some or all of your
personal assets - house, car, savings account, etc. - can be taken to
satisfy that law suit.
If you've taken the time and made the
modest investment to structure your business as a corporation, in
virtually all cases those personal assets can't be touched by that type
of court judgment I just described.
But if your business is
structured as a sole proprietorship - including a DBA
(Doing-Business-As) - those same personal assets of yours are also at
risk. The same is true if your business is formed as a partnership. In a
partnership, all the personal assets of each partner are "jointly and
severally" at risk. Yes, another legal term.
It's enough of a risk
to start a new business. Why add even more risk to your venture by not
talking with an attorney before your take your first step? Because you
might save a few hundred bucks? At the same time risking perhaps
hundreds of thousands of dollars? That doesn't make much sense, does it?
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