Why Do I Need an LLC or Corporation?
By - Jamie McGloin-King
All businesses come with an unavoidable amount of liability.
A properly established and maintained entity - whether it be corporation or LLC - can protect you and your personal assets from that liability.
Corporations and LLCs exist to protect the assets of business owners from the liabilities of the business. A simple example is that of a business that operates a motor vehicle - if that vehicle is driving on company business and accidentally drives over somebody's foot and injures them, that creates a liability. The business owner wants her personal assets protected from that liability, therefore she wants that liability to stay in the business.
U.S. state governments grant people the right to set up corporations and LLCs. In exchange for the legal protection that shields personal assets from business liabilities, these state governments require that each such business take affirmative measures to prepare for foreseeable liabilities. For example, there are state laws that prohibit owners from taking out so much cash or other assets from a corporation or LLC that the business will be left with too little cash and assets to pay for its liabilities. So the owner of a business that knows that one of its vehicles injured a person and that person may be due compensation for their injury cannot strip the assets that the business needs to ensure that person is compensated. (And that is why most businesses buy insurance policies – paying a monthly premium is easier than setting aside large amounts of cash for future payments of unknown amounts to settle problems that are not part of your core business.)
It can be deceptively easy to set up a corporation or an LLC - perhaps the state in which you live provides an online form. Fill it out, pay your money, you get an official-looking PDF – it seems like you're done, right. Unfortunately, that is not enough.
It can be deceptively easy to set up a corporation or an LLC - perhaps the state in which you live provides an online form. Pay your money, you get an official-looking PDF - seems like you're done. Unfortunately, that is not enough.
The most important questions that any business owner must answer – who are the stakeholders, what are they giving and what are they getting, exactly how will the owner(s) be shielded from business liabilities, tax treatment, and more – these cannot be resolved by filling out the form on your state’s website. Nor will that state website provide you with an owner's manual that tells you "here are all the decisions you need to make, and here are your options, and here is how to document your decisions so it's clear later what you decided."
For most businesses, these are important decisions to be made, and we can help you prioritize, decide, and document your decisions.
DISCLAIMER: This blog post does not represent financial or legal advice. Always consult with your attorney or financial professional before making commitments.
