10 Ways to Stay Out of Court: Rule 1 – Incorporate!

Date: August 14, 2018

The last thing a small business can afford is legal trouble. That’s why the NFIB Small Business Legal Center is constantly working to provide resources to better educate owners. To that end, we prepared this presentation outlining ten rules for staying out of court.

While this presentation was specifically tailored for our California members, there is a lot of good material here for business owners in other jurisdictions. So, we’ll go through our ten rules for staying out of court one by one—discussing the nationwide implications for each. And without question, the first rule is of great importance wherever you may operate.

Time to Incorporate

The first rule for minimizing legal risks is to incorporate your business. If you are operating without incorporation—as a sole proprietor or in a simple partnership—you risk calamity in the event of a lawsuit. This is because creditors and plaintiffs can go after your personal assets, like your home, or your savings account.
Incorporation provides protection for your personal assets because it establishes your business as a separate legal entity. A creditor or plaintiff can still go after your business; however, they cannot touch your personal assets, except in extremely unusual cases. For this reason, if an incorporated company should go bankrupt its losses will generally be limited to what the owner(s) invested into the company. 

Other Benefits to Incorporation?

Setting aside liability issues, the other major benefit to incorporation is tax savings. But there is no silver-bullet rule for whether you should pursue an S-Corp, LLC, or some other corporate form. Much depends on the nature, size and revenue of your business, as well as other factors. Accordingly, you should talk with a trusted CPA or tax attorney about your options.

Additional Considerations

While it is possible to pursue incorporation on your own, it is advisable to work with a trusted attorney to ensure that you have satisfied all the technical requirements. For that matter, it is important to understand that incorporation generally requires greater business formalities. That is an additional reason why it is a good idea to have your attorney look over your corporate records once a year.

Further Resources

Small business owners may also benefit from reviewing our Legal Guide Series. We provide easy to read, yet comprehensive, guides to the most important legal issues, from wage & hour law to unionization issues.

*While the information provided here is intended to be accurate, it is not legal advice. Employers are advised to seek counsel from a trusted attorney.

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