Estimated reading time: 4 minutes
By default, most business owners select to structure their business as either a sole proprietorship (solo owner) or general partnership (multiple owners). These entities are the simplest to form, but there’s no distinction between the business and the business owner.
In today’s ‘lawsuit-happy’ environment, it’s more important than ever to place a legal shield between you and your business. As a separate entity, LLCs do just that. There’s no personal liability for any LLC debts even if they relate to a contract or tort.
If by some spur of the moment reason your sole proprietorship or general partnership is sued for violating a written or oral contract, your business AND your personal assets will be at stake. So the question is, “How can I protect myself from these spur of the moment lawsuits once I start my business?” The answer is simple: Form a corporation or an LLC.
Corporations and LLC have unique advantages to protect your personal assets.
Table of contents
Key Advantage #1: Personal Asset Protection
Forming a corporation or an LLC allows you to separate and protect your personal assets from frivolous lawsuits. These lawsuits can more often than not, destroy your business.
Incorporating your business shields owners and other officers in the company from liability. If your business goes through litigation, bankruptcy, or other legal action, your personal assets won’t be affected.
Essentially, your personal property and financial holdings cannot be touched or taken. Even if your business is hit by a frivolous lawsuit, you’re safe. If you’re ever involved in a business lawsuit, incorporating takes the burden off your shoulders. This grants peace of mind knowing your personal assets cannot be targeted.
Think about it… How can you run your business effectively with the constant threat of a lawsuit looming over your head? So, in reality, incorporating not only gives you peace of mind, it frees you from worry so you can focus on growing your business.
Key Advantage #2: Name Protection
Having “Inc.” or “LLC” after your business gives you the uniqueness and legitimacy that ensures you stand out from a marketplace full of competitors. Through incorporation, you gain a shield of protection in your state. There are so many scammers out there pretending to be legitimate businesses. You need to distinguish yourself from them and the best way to do that is by incorporating to legitimize your identity.
This professional identity that you have established through incorporation gives you the ability to protect yourself from other businesses trying to infringe on your brand or use your business name.
It’s hard enough for an incorporated business to get noticed in today’s crowded marketplace, don’t add to that by failing to incorporate.
Key Advantage #3: Credibility
Incorporating your business signifies credibility and structure of your business entity to vendors, investors and partners. Additionally, ensuring that your business is a credible entity creates a better relationship between you and your clientele.
It shows that your business is serious about operating professionally and providing an honest experience. Also, don’t forget … having an LLC or corporation gives your entity the ability to sell stock and raise capital through shares. This is a must for potential investors.
Key Advantage #4: Tax Breaks & Tax Advantages
While legally separating businesses from the owner, it can elect treatment as a partnership for tax purposes. As such, the LLC doesn’t pay any tax itself. Instead, the income passes through to the owners like with partnerships thanks to the tax rules governing partnerships that aren’t as rigid, allowing more flexibility in tax planning.
As a result, having an LLC offers distinct tax advantages. You can enjoy tax breaks on items such as self-employment taxes, life insurance, and health insurance premiums. These tax advantages can help you manage costs and decrease your overall tax liability.
Key Advantage #5: Easy to Run
Many entrepreneurs opt for sole proprietorship because of how easy they are to run, but LLCs are also easy to run and manage. That’s because there’s no limitations as to how many members can be involved or where they’re located.
Formed on the principle of the Freedom to Contract, owners need only agree among themselves on how to run the company, and courts will uphold that agreement.
Even better, with an LLC, there’s no law requiring resolutions, amendments, meeting minutes or annual board meetings.
Forming a corporation or an LLC might not be the first thing on your mind as you start your business. However, incorporating your business legitimizes your business affairs and even separates your business assets from your personal assets. It also protects you from lawsuits that can harm your business.
When you’re ready to incorporate, contact the business formation experts here at Inc Authority. We’ll answer any questions you may have along the way, so that you start your business on the right track. Don’t wait! Incorporate today!
Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.