Attorneys Blog

Do you really need to form a corporation?

People that are starting a business often think they need to form a new corporation or LLC right away. Not so fast. What are the benefits of operating as a seperate entity? The principal advantage of doing business as a corporation is that there is limited liability. What this means is that the ownwers (shareholders) cannot be held to answer for the debts of the business. Sounds great, but as a practical matter the corporate entity gives very little protection to most small companies. Banks and other grantors of credit usually have the owners sign personally for any credit extended. At least it helps reduce liability or injuries caused by my business, right? It does, but it does not protect you from your own misdeeds, just those of other employees of the company. As the vast majority of businesses have no employees, the owner will always be on the hook for his actions. In addition, the owner is generally able to cover any potential liability claims through insurance. Forming a corporation may make sense, but make sure it does before you waste your valuable time and money.

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