As we begin the new year, it is time for all businesses, large or small, to consider steps to protect and preserve their business and assets from unwanted claims and liabilities. Most business owners work hard to establish and grow their business and to create personal net worth.
Unfortunately, as business grows, so does the potential for someone to seek to recover money for real or perceived claims. Many businesses are still being operated as sole proprietorships or partnerships, which means that the individual owners are personally liable for the debt and obligations of their business.
What this means is that a business owner, without adequate protection, could lose their home, savings and other assets that they have worked so hard to obtain. This risk can be alleviated through simple business and asset protection planning.
For relatively little cost, a business owner can make use of one of many forms of business entities which are available to prevent personal liability. The most common of these entities is a corporation. All businesses, at a minimum, should operate as a corporation in order to preserve the owner’s personal assets and avoid potential personal liability.
A corporation is a “Person” under the law and is separate and distinct from its owners. In the event of problems with a creditor or other individual, they would be required to recover damages from the corporation (being its own person) and not from the individual shareholders.
While a shareholder (which could be one or many people) may be employed by the corporation, so long as the corporate formalities are observed, the personal assets of the shareholders will be protected.
In addition to asset protection, a corporation provides additional means of tax savings, when full use of the Internal Revenue Code is made. This will include, when appropriate, the fact that a corporation has its own tax rates, which may be substantially lower than individual taxpayers.
As we begin the New Year, this is the optimum time for a business to incorporate, to protect itself from unwanted liabilities, and take full advantage of a full year’s potential tax benefit.
The exact business entity which is best for each individual business should be reviewed with your legal advisor and the tax benefits discussed with an Attorney or Accountant who is familiar in this field.