| Over and over you will hear you need a business entity for your start-up. This raises the question or whether you are actually required to have one. Do You Have To Form An Entity For A New Business? When starting a business, one can run into information overload. One area this can occur with is business entities. With all of the information on the web and various discussions of this and that, you can easily get confused. Before you figure out the intricacies of a corporation, for instance, one needs to deal with the basic question of the necessity. There is no legal requirement in any state that you form a business entity. It simply isn’t required to get up and running with your business. If you do not incorporate, you simply function as a sole-proprietor if you are the only owner and a partnership if there are two or more people involved. So, why all the discussion about incorporation? It is a smart move. When you run a business, you face the risk of being sued to the high heavens. You also face the possibility the business will fail. In both instances, the debts of the business can easily wipe out your personal finances if you are not careful. The reason most people suggesting you incorporate is doing so protects you from such debts. If a lawsuit is filed, the corporation is the defendant. If a judgment is returned, it can only be collected from the corporate assets, to wit, you do not lose your home, car and savings. While this is a fairly simple notion, it is an important one. Incorporating protects you from disaster. Making the decision to incorporate is a smart one, but it doesn’t necessarily mean you need to use a corporation. Corporations tend to be big, bulky beasts to run. Many small businesses now prefer to choose limited liability companies for their business efforts. A limited liability company, also known as an LLC, provides the lawsuit protection of a corporation, but is much easier to run from a documentation perspective. In truth, the ultimate decision often involves tax decisions, so speaking with an attorney or accountant is a smart choice before making your decision. Are you required to use a business entity? No, but you definitely should use some type of business entity that provides protection from lawsuits. |
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