My answer is very clear – NO.  Given the very low costs to form a limited liability company or a corporation, and the relative ease of maintaining one of those entities, it just NEVER makes sense to operate a business without one.

If you operate a business as a sole proprietor, you are 100% personally liable for anything that happens with your business.  What this means is that everything you own is at risk.  Why take on this risk when for a few hundred dollars you can protect your personal assets from being at risk by using a limited liability entity such as an LLC or corporation.

Most people think that if they operate only a small business, then it is not worth it.  This inquiry has nothing to do with how much money your business makes. Instead you need to think about what assets you have or might accumulate later in life.  If you have a home, your equity is surely worth protecting.  If you have money in saving accounts or investment accounts, don’t you want to shield those from being lost due to your business activity?

Even if you own nothing of value today, if you intend on acquiring anything of value later, you will risk losing those assets from business activity you engage in today.

Another reason people do not protect themselves is because they think- “no one will ever sue me” or “what kind of liability can I ever get in with my small business?” All you have to do is look at the lawsuit statistics in this country.  Unfortunately, we are a litigation happy society and there are many lawyers who will take on any case for money.  Last I heard a person’s risk of being sued is higher than the chances he or she will be hospitalized.  If you run a small business, you become an even bigger target.

Instead of guessing at what liability, dispute or problem your business might ever get into, isn’t it better to just use an LLC or corporation from inception to gain the benefit of the protection.  It is like a very cheap insurance policy.  Thousands of small business sole proprietors are shocked every day to get lawsuit papers that open themselves up to losing everything.

Now some people think insurance policies can cover any risk.  I have seen one too many cases where there was an exclusion or limitation in a policy which resulted in significant personal liability from a business obligation.

In today’s business world where there is a lot of risk and a lot of changes, it never makes sense to operate any business as as sole proprietor.  If you want to learn more about this, I created a web page with an analysis of sole proprietor v. LLC. Click here: Sole Proprietor v. LLC

Taxes are such an important part of any business because it applies to everyone and it has a real affect on the bottom line.  At then end of the day, what matters is not what you make but what you get to keep.

All business, regardless of its legal structure or its tax classification, generates a tax liability on net income.  While the corporate tax code differs from the partnership tax code, the general premise is that revenue minus deductible expenses and credits is the formula for determining net income.

So, when we get into the last months of a calendar year, businesses start to think about what they can do to save on taxes.  Getting to the end of a tax year obvious brings up some potential for deferring revenue recognized and accelerating expenses to be taken.  Here are some tips that can be helpful:

1. Review Late Customer Accounts and Determine if You Can Take a Bad Debt Write Off Prior to Year End.

2. Accelerate the Payment of any Bills That Might be Technically Owed after the Year End.

3. If your Business Needs to Buy Any Equipment, Consider Purchasing Prior to Year End.  The Internal Revenue Code currently includes a generous threshold on being able to deduct the entire purchase price of capital equipment.  Check with your accountant for details.

4. Make Sure All Year End Bonuses are Paid Out Prior to Year End.

5 If you have a retirement plan, consider making contributions (for this one, you have some extra time but if you plan on making this contribution you might as well do it to secure the reduction in taxable revenue).

One really important step when starting a small business is coming up with a name for your company.  There are two main areas of law to concern yourself about.  The first is business organizations law.  Whether you plan on using a limited liability company or a corporation, the name you use must be available for use as a legal entity name in your state of organization.

Also, check in your locality where your principal business will be conducted.  There are many non-legal entity businesses that are required to file for DBA and busines licenses and so you want to be sure there will be no conflicts with the names being used by those businesses as well.

So before you get too comfortable with a name, make sure you check with your state corporation agency (called the Secretary of State in most but not all states) to confirm that your name is not already being used or is not too similar to another name registered.  If your business name is really integral to your business, consider reserving the name if you are not yet ready to move forward with your business entity organization.

If you plan on using your name as your company brand and in connection with promoting your products or services, then there is a second area of law- trademark and trade names, that become relevant.  Generally, these laws prevent you from using a mark that is so similar to another trademark that it has a likelihood of causing confusion in the marketplace.

Unfortunately, there is no black and white answer to this inquiry.  First, determine where you will be selling and promoting your products.  If it is just locally, then you need to determine whether there is another business in your local area which uses the same name to sell a similar category of goods or services. If you plan on selling nationally or even internationally, your inquiry needs to cover your scope of coverage.  How do you do this?  The answer is through getting trademark searches.

You can start by searching the government website where marks are registered- Thet patent and trademark office.  They have a search function on their site.  Another option is to pay for some trademark search reports.  Or, you can find attorneys who will do this for you at a flat fee.

Now, many small business owners do not inquire into trademark matters because money is an issue and the company is just starting.  However, think about what may happen if your business becomes the successful and thriving one you plan on creating?  You do not want to spend thousands and thousands of dollar promoting your brand only to find out that you can no longer use your name and you may be liable to another company for substantial damages.

This analysis of course depends on how integral your name is going to be to your business and where you plan on conducting business.  At the very least, conduct your own web based inquiries to see if there are any blatant similarities with competitor businesses or those that are in the same general industry as your contemplated business.

This current economy is just devastating.  While the Wall Street Journal contains story after story of the problems of large corporations, the small business market is also getting hit.  I have clients and business colleagues whose sales are down over 75% and who are facing major cash flow problems.

In my view, tough times are much rougher on small businesses than large corporate businesses.  Having to layoff employees is like turning away family versus just cutting headcount from a budget.  Vendors and other business partners are usually also good friends and so not being able to pay them is a lot more personal and emotional.

This is a time when good business planning comes in handy.  Many start automatically to think about throwing in the towel and filing business bankruptcy. Instead, you should try to think creatively.  Use your entrepreneurial and visionary skills to craft ways to get through this down turn.  Work together with your creditors and employees to see if there is a better solution than just the obvious one of business implosion and termination.

If you can figure out a plan for how to get through the difficult times, you will have a leaner and stronger business for when the economy does recover.  And, if you are lucky enough to be okay during this time, then you should be thinking expansion not hibernation.

You see, your competitors are cutting back.  You should be thinking about how to leverage the current situation to gain market share and establish a larger presence in your marketplace. Now you need to be cautious, but with any negative there are always positives and it is the astute and brave entrepreneur who is able to see and capitalize on them.

A busy entrepreneur gets so engrossed in trying to handle all the different things that are required when starting and operating a business.  One major mistake of many first time entrepreneurs is that they sign contracts left and right without ever looking at them.

This can be a fatal mistake in business.  I understand that some contracts are take it or leave it so you must sign them if you need what the contracting party is offering, but in today’s world, there are ALWAYS options and so, at the very least you need to know what you are signing up to.

Here are some real life examples of where trouble can arise if you sign without reading:

1. One client of mine thought he was signing up to purchase $500 worth of supplies from a vendor.  There was a contract provision in his agreement that required a $500 purchase each and every month for 5 years.  Very different business deals. . . but given that he signed the contract, he is now liable for a $30,000 obligation he thought was only a $500 one.

2. Another client struck a relationship to sell her business product to a company at an agreed upon price.  She signed an agreement without reading it. In that agreement, was what is called a Most Favored Nations Clause which states that if she ever agrees to sell the product at a lower price for anyone, she must give this customer the same low price.  This is not fair.  What if she finds a customer who is willing to buy 100,000 of her product so she gives a lower price?  Now, this new customer gets that price as well.

3. A third example is the business owner who signs a contract which contains a noncompete provision in it.  All of a sudden, his business is very limited in where it can sell its products.  He never read the agreement and so now his business opportunity becomes 20% of what it was.

4. Another provision that contracts try to sneak in is the auto-renewal provisions which makes an agreement renew automatically . . .sometimes forever.  In many cases, you will not want to be tied into it forever.  And, having these contracts will affect the way you van grow and do business later.

Bottom Line.  There are many many sneaky provisions put into the fine print of contracts.  Sometimes they are not sneaky but just should not apply to your business relationship.  The ability to grow a business requires that you are always making sure that you are not legally agreeing to things that can hinder you, cause excess liability, create major monetary obligations or otherwise negatively affect your business plans.

The first step to doing this is to read your contracts before signing.  An even better step is to have your business attorney review your contracts so you can at least know what you are signing up to.

It amazes me that business owners still ponder over whether to run their businesses as a sole proprietor as opposed to using an asset protection vehicle such as a corporation or a limited liability company.

All you have to do is look at the small business lawsuit statistics in this country to know that the risk of being sued is so high. Business is all about risk and interacting with others.  As a business you may have arrangements with contractors, service providers, bankers, investors, employees, partners, customers and anyone you have any relationship with no matter how small.

Each interaction gives rise to a potential of problems.  Why take on an open ended risk of being personally liable for any and all business liability when, for a few hundred dollars, you can create and use a limited liability entity to give you a layer of protection?  This one step is a cheap insurance policy that can save you thousands if not millions later in losses.

Also, think about it.  If your business ever becomes successful, it becomes a lawsuit target. Lawsuits are almost always about money and once your business is generating money, the lawsuit predators will be lurking.

If you run a sole proprietor business, you are creating a ticking time bomb.  The more successful you get, the more attractive your business is for anyone looking to extort money.  Even worse, because you personally and all your assets will be at risk for a lawsuit, any potential plaintiff or attorney knows they have even more leverage against you.  What will you pay to make him go away?  Probably a lot more if you know your home, savings and other asset are at risk.

I just think it is crazy for any business, no matter how small or how remote liability can be, to not use a limited liability entity given the low costs and ease to maintain one.

If there was only one tip I could give to business owners that will definitely reduce later problems, disputes and lawsuits, it would be to get every business deal and arrangement you strike IN WRITING.

Memories fade and different people attach different interpretations to business arrangements.  It is a fact of business that most plan never come out the way you expect and there are plenty of surprises along the way.  You do not want to add to this uncertainty by having no written evidence of what was agreed upon with the people you do business with.

If you survey the cases that business litigators have, you will see that many of them could have been avoided by having a written contract to outline the relationship between the disputing parties.

Also, if you survey experienced entrepreneurs, most will be able to tell you of a story where the failure to get something in writing costed them money, stress and headaches. .  all of which could have been avoided by having a proper written document.

A written contract not only will benefit you and others by properly reflecting a business deal, but you can also include other legal type provisions to protect you from being sued later or protect you from harm that could be caused by the other party.

In the business world, the written contract is the fundamental basis for everything you do that makes you money. It is also the basis for determining the value of your business.  Everything is in the documents.  Think about this when you are building your business.

I have worked with hundreds of entrepreneurs and probably over 30 extremely successful ones. In my years as a business lawyer, I have noticed something.  First time entrepreneurs shy away from speaking with attorneys and the last thing they want to think about is business planning or even worse, business legal matters.

On the other hand, experienced and serial entrepreneurs (meaning those who have millions of dollars of net worth after having built successful businesses) will hardly make any significant business decision without consulting their business lawyer. And, while they too do not get excited about business law or planning, they know that these two principles are essential to building a business of any real value.

I have the interesting background of being not only a lawyer but also an entrepreneur and sometimes serving in a business development and sales role for my clients.  So, I also understand the feeling you get when business legal or organized planning issues come up . . .and sometimes seem to get in the way of building a business.

But, to the contrary, these two concepts- business law and business planning- are key to making money . .  or at least keeping money.  And, making money is the main reason anyone is in business.  If you, as an entrepreneur can understand this, your business life will go more smoothly and you will avoid many of the the pitfalls, problems and even failures that are common with first time business owners.