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.

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Filed under: Business Planning • LLC/Corporations

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