You may have already established a legal entity for your business. You may, however, use a schedule on your income tax to operate as a sole proprietor. You worry that an attorney will cost too much. You may think you don’t need one. You were able to register your business with your state’s Department of Commerce and get a business license. You may think that you don’t need more. You would also open yourself to risk and losing all you own: your home, your cars, your children’s education funds, and more.
Reasons to Establish a Legal Entity
Attorneys can list a number of reasons to establish a legal entity. I list just a few:
- Personal protection: Without the right legal entity, your personal assets remain at risk. Someone may sue you for a variety of reasons: bad advice, injury at your business or from a product you sold, discrimination, or more. If someone sues your business, and you don’t have the right protection, they could lose everything you own.
- Professional protection: Not only do you remain at risk personally without a legal entity, you could also suffer professional risk. The chance of lawsuits runs both ways. Your child hits a car and injures a passenger. You could lose your business in the lawsuit.
- Reduce the Tax Burden: The right legal entity will reduce your self-employment and other taxes and compensate you in the best manner. A professional can guide you through the labyrinthine tax codes.
Types of Entities You May Establish
We will examine the benefits and guidelines for each of these over the next few posts:
- LLC, LPC, et al
- Partnership
- 501(c)3 (non-profit)
- C-Corporation
- S-Corporation
- Trust
I am not a legal expert. I strongly encourage you to consult with a small-business legal expert to determine the protections, structures, and benefits that best suit your business.
Join me Thursday to learn more about LLCs and their related entities
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