It’s not personal. It’s business!
At its most basic level, running a small business is as simple as charging others for your products or services. If you operate under your own name as a sole proprietorship, or as part of a partnership, your business is legally indistinguishable from you as an individual. Some businesses may be appropriate to run as a sole proprietorship or partnership. Without forming a business structure, like an LLC, however, you can face the following risks:
- Personal liability. If your business is sued or goes into debt, the lack of an LLC or corporation means you are responsible or personally liable for those debts or lawsuits. This means you are risking your most valuable assets.
- Tax consequences. Reporting business taxes on your personal income tax returns can greatly increase your personal tax liability. You might also risk missing out on deductions for business expenses or other valuable incentives if your personal and business finances get mixed together.
- Limiting your opportunities. If your business is not ready to grow, it can spell disaster for a small business owner. Most investors avoid unregistered companies, and lenders may not approve business loans to unregistered businesses.
Some risks are avoidable
You can’t control everything that happens as you embark on your new venture, but registering your small business as an LLC or corporation can go a long way toward limiting personal risks. The type of business structure you choose depends on the size and nature of your operation. LLCs are recommended for small businesses whose owners are also the primary managers. Corporations, meanwhile, maintain continuity beyond the lives of their founders and provide additional tax benefits.
Generally, registration as either type of entity can help your business raise funds while also protecting the owners’ personal assets. For example, if a customer slips and falls on the floor of your establishment and is seriously injured, they may sue your LLC or corporation for damages, rather than you personally. Moreover, it demonstrates to federal, state, and local officials, as well as customers, clients, and potential partners, that you’re an official business, complying with applicable regulations and here for the long term. In addition to registering your business, you can limit business risks by having signed, written contracts for your agreements and relationships with vendors and employees.
Ways Rocket Lawyer can help:
- Register your business.
Whether you’re just getting started or are ready to open your doors for business, limit your liability and your risk. Sign up for Rocket Legal+ to get your first business registration filing FREE (excluding state fees).
- Talk to a Legal Pro.
Get affordable, expert help from a Rocket Legal Pro and get answers to any questions you may have about starting your next venture.
- Get everything legal all in one place.
Start up confidently with a full suite of legal tools and solutions, including expert review of your legal documents by a Rocket Legal Pro and the time-saving convenience of Rocket Sign. If you have legal or tax questions, reach out to a Legal Pro for answers specific to your unique situation.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
