Deciding whether or not to incorporate an operating sole proprietorship is one of the key business decisions for start-up companies. Essentially, in a sole proprietorship the person and the entity are one “person” under the law. Therefore, everything, both good and bad, pass through to the sole proprietor. However, should a lawsuit be brought or a bankruptcy occur, then the sole proprietor and his or her individual assets (money, house, etc.) may be liable for payment of a judgment. If the sole proprietor had incorporated, then his personal assets may not have been at risk. The type of business entity directly correlates to the personal exposure for business liability.
When an individual incorporates a business and properly treats it as a separate entity, a corporate “veil” is created. The corporate veil effectively shields the business owner from personal liability, with some notable exceptions. In addition to potentially shielding the individual from liability, the corporate form may also offer some tax benefits for entities that pay dividends in addition to reasonable salaries. Although the decision to incorporate is an individual decision related to the specific risks and size of a business, it is often a good idea for entrepreneurs to consider. Contact the experienced corporate attorneys at The Loftin Firm P.C. today to see if incorporation is right for your small business.