Business Formation
My clients regularly come to me with the question, “How can I protect my family property from claims coming out of my business?” The answer often is to incorporate the business so that it becomes a complete and independent legal entity that is liable for its own debts. The theory is that a shareholder/owner of a corporation is only obligated to pay for his stock. Neither the corporation nor its creditors can ask him for anything more.
Incorporation has some down-sides to it, so each client presents his or her own special needs to solve. An old friend had a very small sideline business selling caustic chemicals to clean out septic tanks in addition to his regular job. Even though there wasn’t much money going through the sideline, the potential liability was huge. He had a glaring need for a corporation for the chemical business. Another friend comes with two employees and plans to add more. If an employee negligently injuries someone, corporate law holds the employer liable. A corporation is the best solution to protect the employer’s personal assets. He needs a corporation.
Choosing the form is not too difficult for a small business. LLCs are all the rage, but frequently cost more than they deliver. To me the statutes creating LLCs allow only the very sophisticated investors and businessmen to take advantage of the complex and tax sensitive opportunities. For most of my clients, normal corporations or S Corps are the way to go. To look at the various components of the decision, look at the information provided by the Small Business Administration of the US Department of Treasury at the site set out below, then come to me to discuss the realities of the process.
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