When it comes to starting a business, your first question is probably “Why do I need to incorporate?” You might be surprised to find out it goes well beyond registering a name or putting your corporate flag in the ground. At its heart, incorporating a business is all about securing you and your loved ones. It’s kind of like creating an alter-ego in the name of your business — by day you’re a mild-mannered individual, but when you incorporate? Cue the fanfare!
When you file for Incorporation, you’re asking the State to recognize your new business as a new and separate legal entity from you and any other owners. It’s a legal process that encourages entrepreneurship by giving you a “shield” to protect your personal assets as you begin a new venture. So while you’re off taking the necessary risks of an entrepreneur — developing operations, making investments, signing with partners, and other heroic acts — your personal assets are safe at home.
Every start-up should incorporate, whether it be as an LLC or a Corporation. By doing so, the owners of the business will have their personal assets protected by a shield known as “limited liability”. Within the LLC or Corporation, owners can sign contracts, assume debts, buy real & personal property and open bank accounts. In time, the LLC or Corporation can even develop its own credit rating, ultimately freeing the owners from having to make personal guarantees for the business. The shield protects against corporate creditors as long as the business owners don’t personally guarantee a debt, loan etc. on behalf of the LLC or Corporation. But beware; the shield is not absolute.
In certain instances, the shield can be “pierced.” It’s known as “piercing the corporate veil,” and it’s the kryptonite to your superpower. If you commit fraud while acting on behalf of the business, commingle funds between you and your “alter-ego,” or fail to keep up with your corporate formalities — even seemingly banal tasks like taking the annual minutes for Shareholder and Board of Director meetings — you may open yourself up to being sued personally.
It takes long-term vision to hang on for the long haul. But before you set your eyes on “leaping tall buildings in a single bound”, make sure you don your cape and shield — protect yourself professionally and personally with a legal, State-filed incorporation.
Looking for a legal super-hero? Call Gil today to see what SmallBizLaw can do for you!
Tags: Entrepreneurship, INC, Incorporation, LLC, Startup
