The One Thing Every Business Owner Needs to Do
As I mentioned in my last post, I was involved in a panel discussion for small business owners about things you can do to reduce your stress as a small business owner. After the panel, one of the business owners approached me and asked me the following question: What is the most important thing a business owner should do from a legal perspective?
I may have surprised the business owner when I had an answer as soon as they finished asking the question. The answer is simple. Incorporate.
I cannot stress this answer enough. No matter how big or how small your business; incorporate it. Even if your small business is essentially an expensive hobby; incorporate it.
Incorporating your business serves three important purposes.
It protects your personal life.
The biggest thing incorporating does is it separates you from your business. Regardless of the type of incorporation (around the country there are many different types, but the big three are Limited Liability Companies, S-Corporations, and C-Corporations), the act of incorporating makes your business a separate legal entity. This means that, for all intents and purposes, it is its own person.
What this means is that all liability, whether it is from defaulting on debts, accidents, negligence, or almost anything, ends with your business. Only your business’s property and funds can be taken through legal actions. As long as you are incorporated, you house, your car, even your TV, is safe. If you aren’t, they are fair game.
Incorporating means that your business can declare bankruptcy without it personally affecting you. This means that your credit rating is much safer. Remember, you can always start a new business under a new name. It’s tough to do that with your personal life.
It makes your name unique
One of the nice side effects of incorporating your name with a Secretary of State is that it makes your business name unique. In most states, only one business may incorporate under the same name. This, for all intents and purposes, acts as a trademark on your business. Once you are incorporated, you don’t have to worry about another business in your state stealing your name.
It makes you look more professional
One of the overlooked reasons to incorporate is that it shows that your business is professional. It shows prospective clients, customers, and investors you are serious about your business. It shows you view your business as something grander than yourself. It shows you take pride in what you build and that you want to protect it.
There many things a business should do to build a strong foundation. Most businesses need a good Independent Contractor Agreement, Service Agreement, or End User License Agreement, to name a few. None are nearly as important, or affordable, as incorporating your business. There is no excuse to put it off.