Food for thought for the would-be entrepreneur (part 2 in a series)
Why do entrepreneurs want to get incorporated in the first place?
Many entrepreneurs think incorporation is the first step to a successful business. After all, it worked for (insert name of any giant corporation,) didn’t it?
More often, people want to incorporate (or become LLC’s) because they have the idea that incorporating provides some amount of protection against personal liability.
They heard about it on the radio, or maybe they’ve pieced together some overheard conversations and movie dialogue. Well, hold your horses! There are various ways to go into business in these United States, and incorporation is only one of them. Each choice carries different levels of responsibility … and different types of taxation. (We’ll get to that.)
First, the best way to keep yourself out of the courtroom is to keep your business practices on the up and up. Even if you are properly incorporated (or properly any other type of business,) improper business practices can nonetheless open you up to the terrifying prospect of personal liability. Sorry to be the one to tell you this, but you have to follow the rules. (More on this later.)
Second, if you are seriously concerned about protection from lawsuits, then it’s a good idea to be properly insured. Regardless of your form of business or your industry, in today’s litigious society, if someone wants to sue you, they will find a way. (Yeah, there I go again with the doom and gloom.)
I can’t stress the need for plenty of appropriate insurance. Some forms of insurance are required by industry, or by activity. For instance, if you have a professional license, you need professional liability insurance. If you drive a vehicle, you need an auto policy. If you have employees, here in NJ, you need a worker’s compensation policy. So before you decide to incorporate, go talk to an insurance agent to find out what you might need. It could make a difference in what you decide.
In the next few articles, I’ll address the how-to, and then discuss the options ahead of you – incorporation, partnership, sub S corporation, LLC, and of course, sole proprietorship.