Since I’m not an attorney, I probably need the typical disclaimer that I, in fact, am NOT an attorney, but I stayed at a Holiday Inn Express, so this is NOT legal advice. Here’s the way I answer this question for myself. First, I consider the potential advantages of forming a formal legal entity for my business:
- Save money on taxes – If my business isn’t making a lot of money ($50K+ per year), this probably doesn’t apply.
- Look more professional – There are plenty of ways to make my business look professional… a nice website, business cards, how I present myself, etc.
- Easier to get funding – Unless I’m talking to venture capitalists or plan on doing so soon, I’ll save this for later.
- Liability Protection – THIS MATTERS! If I feel like my customers, suppliers, employees, etc. could sue me for ANYTHING, then I get serious about setting up a corporation or LLC for my business. In the very unfortunate situation that I get sued, a corp or LLC is what will protect my personal assets, like my house, from being taken if I am found liable for damages.
Second, I think about the hassle & costs that are involved. If you do your research, setting up and maintaining a corporation or LLC can be quite simple and inexpensive these days, though. I’ll save this for later. In the meantime, some things to consider are:
- What is the costs to set up and maintain my corporation or LLC?
- How will I ensure my corporation stays in “Good Standing?”
- How difficult will it be to separate all finances for my business?
- Will my tax situation get much more complicated?
The good news is that all of the costs and hassles can be minimized with online incorporation sites. But, you have to be VERY careful who you choose. You also need to figure out if an LLC, Corp, or S-Corp is right for you, and if it’s worth setting up your business in a “business friendly” state like Delaware or Nevada.
More to come…
