Play 16, “Maybe You Shouldn’t Incorporate.”

Play 16, “Maybe You Shouldn’t Incorporate.”

Welcome to another week’s Play from my Small Business Legal Playbook. I hope the tips are helpful to you and your business, as these Plays are specially designed to give you a little insight on the legal side of running a small business. Today’s Play, Play 16, “Maybe You Shouldn’t Incorporate” is the final Play for this Season. Play 16 is a little different from my previous Plays, and that’s why I saved it for last. Play 16 is about why you shouldn’t incorporate. As such, all the strategies will be Offensive in nature, and won’t be reactive.

Many lawyers will tell you that you should incorporate your business. I’m going to tell you why incorporating your business might not be the best idea. Yes, I’m telling you that an attorney might not be necessary.

First, there are many very good reasons to incorporate your business, they can shield you from personal liability for the corporation’s debts, they might save you money on taxes, they make you more attractive to investors, the list of benefits goes on and on.

However, sometimes incorporating just isn’t the right move. Why not? Well, there might be very few benefits to being incorporated, depending on your line of work. Being a professional, for example, doctors often have their malpractice insurance to protect them, and the corporate shield of incorporation might not be able to protect their personal assets from a malpractice claim. Clients have been surprised when they discover that their personal assets could still be on the hook in a suit involving their corporation.

Another reason not to be incorporated is you simply might not make enough money to justify it. The smallest amount you must pay the State of California yearly is $800.00. That’s what an LLC must pay the State of California every year. I had a client a few years back actually paying more in taxes than she was taking in, because the State of California charges that amount regardless of how much revenue you receive.

So how do you protect yourself from liability if you don’t have a corporate shield? You can do so with good professional insurance policies and well drafted contracts that limit your liability.

Finally, when you are ready to incorporate, there’s nothing to fix, just a clean slate for your attorney to work with.

Hope you enjoyed this week’s Play, and stay tuned for next season, where you’ll get a whole new set of plays! Remember to subscribe and get each play sent to you directly! Until then, may your businesses continue to thrive and your football teams be victorious. Keep playing to win!

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