I speak to numerous businesses who are operating as a Sole Proprietor or General Partner. Their personal assets are at risk if someone decides to file a lawsuit against their company.

Smart entities are C Corporations, S Corporations and Limited Liability Companies. Each has its own advantages and disadvantages. With a Corporation you will have shares of stock, a board of directors, separate tax returns, annual meetings and documented minuets of each meeting. You will be an employee of the corporation rather then an owner. If you are considering operating as a corporation, seek the advise of an attorney and accountant.  Errors in filing can cause major problems.

A Limited Liability Company is comprised of members and managers. It can be a single member LLC or have unlimited members. The members may be individuals, foreign citizens, trusts, or corporations. It can have a flexible management arrangement and various ownership percentages. In many states, the filing fees are similar to that of Sole Proprietorship. Your personal assets are protected as long as you follow a few simple rules.

1. The company must have it’s own bank account filed in the name of the company.
2. You must not “co-mingle funds.” That means you pay for business expenses out of the business account. Personal items must be paid for with separate funds. You can transfer funds to your personal account via a paycheck.
3. Signing a personal guarantee for anything pierces your corporate protection on that item. If someone can prove that you sign personal guarantees for numerous items, you can loose you entire protection. This is a topic of discussion for your accountant or attorney. Many times you can purchase the item and lease it to your company.

So, protect your assets because there are lawyers looking for a good lawsuit.

Ken Bear Cole

A Second Look Business Consulting LLC