Forming a Corporation or LLC is Important

Posted on Monday, March 16th, 2015

In light of the well-known costs of litigation, personal exposure to debts and various liabilities, and myriad statutory, administrative and other laws to comply with, why do so many sole proprietorships and general partnerships still exist? Because of the relatively low cost of forming an LLC or corporation when compared to the potential risks, the answer is likely that most business owners who have not formed one of these entities are simply not aware of one or more of the many potential benefits. To name a few:

  1. Liability: if done properly, a corporation can provide a liability shield between the business and its principals (e.g. officers and directors not held personally liable for debts and liabilities of the business or business related activities).
  2. Organization: easier to issue equity, take investments, etc.
  3. Permanence: corporations and LLC’s can live forever, even when management changes, or principals die or pass their interest(s) to successors, etc.
  4. Agreement: clearly defined parameters of what each stakeholder is entitled to.
  5. Taxes: increased options for tax planning/potential tax benefits.
  6. Investment: investors will generally invest only through a limited liability structure, decreased risk via the existing limited liability structure of a business generally makes the assets or equity of a business more attractive and valuable to investors, etc.
  7. Transferability: having a corporation or LLC, generally makes it easier (and possible) to transfer equity in an existing business or to transfer assets owned by the business.
  8. Professionalism: having “Inc.” or “LLC” after your businesses name on legal documents often conveys a more professional image and conveys more credibility than simply “John Doe d/b/a . . . .”

Even if you are a one person consulting business, hair dresser, make-up artist, coder or developer, forming a proper entity for your business operations is recommended.