When starting a business in Florida, Tennessee, New York, or really any other place imaginable, the first and perhaps most important investment you will make will be in forming a business entity. There are a variety of business entities from which one can choose, such as a C- Corporation, a Limited Liability Company (LLC), S-Corporation, Limited Partnership, and more. This brief review will not discuss the pros and cons to each of these unique entity structures. Instead it will discuss the reasons to consider incorporating your business venture. There are three main things one needs to consider when deciding if forming an entity is right for them.
1. Personal Asset Protection. If one starts doing business alone, by himself, as a sole proprietor, that person is subject to personal liability for things that happen related to the business and sometimes more. This means if God forbid someone is injured, both physically or monetarily, through one of the products or services you offer, or a contract of business relationship goes horribly wrong, the person/company claiming to have been damaged could eventually come after your savings account, your car, and in some situations even your house in a lawsuit. This is certainly not an ideal situation. By forming and properly using a business entity, this situation instantly disappears as a properly set up business entity will create a layer of protection over any asset you personally own. Essentially a new legal “person” is created with it’s own legal name and tax ID number that is the only one responsible for debts of the business.
2. Bankruptcy Protection. This point is mostly a follow up of the above, but the market for goods and services is certainly very competitive in today’s digital and fast paced economy. A business may do well at first, but may not do so well a few years down the road. Even more scary, imagine a company like Blockbuster, whose entire business model has been shifted upside down seemingly overnight as they transition into a web-based distribution model versus their tried and true brick and mortar shops of the past. If the situation demands, the entity has the option to go through bankruptcy proceedings as the entity, and the owners may not have to be part of that. Thus the owner’s car, brokerage account and other personal assets are protected and are not impacted. As well, the individual’s credit report will not have a black mark on it for future years (although they may still end up answering questions about it.) Obviously this is a very simplified view of the complicated area of bankruptcy law but is meant as a general overview and individual circumstances can differ.
3. Growth. Setting up initially as an entity will allow the owners to bring in outside investors, business partners, or others more readily as the mechanisms for corporate expansion are already in place. Likewise, many other corporations and individuals in today’s world will view owners as much more legitimate operating as a corporation rather than as a sole proprietor. Different opportunities not necessarily available to an individual may be available to a corporation. This is especially true in the services or consulting business, where another entity might want to only hire a corporation and not an individual for their own employment tax purposes.
Bradley Legal Group, P.A. are Intellectual Property lawyers, Entertainment lawyers and Music Lawyers servicing clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Orlando, and Nashville. We also affiliate with entertainment lawyers licensed in New York and Washington, D.C. © 2011 Bradley Legal Group, P.A.