Reasons to limit personal liability in your business
A lot of small business owners don’t realize how risky it is to run their own company. Even if you don’t operate in an industry with a lot of risk (such as real estate, or other industries where physical harm is prevalent), like stock, or literature, there still are a lot of risks out there. You want to make sure that if someone is suing you, they are only able to go after business assets and not your personal ones.
Financial liability is also a huge risk for small business owners. If your business is struggling and you are operating under a sole proprietor ship, you become personally liable for the business’ finances. You want to make sure you are protecting your personal finances as much as possible.
How to minimize your personal liability
While there are ways to reduce your liability such as doing your best to make sure no one gets hurt at the expense of your business, there are better ways to reduce your liability. Choosing a business structure that separates you as an individual from your business is the most sure-fire way that you are going to be protected. This means that if you are sued and you’re operating as one of these business structures, then your home, savings, cars or other assets can’t be touched to pay your business debts.
S Corporation –
Corporate business structures will make sure that you are protecting your personal assets. Most small business owners looking to reduce liability opt for an S Corp business structure. This offers protection for legal and financial liability and offers what is called “pass through entity taxation”. The S Corp has a few hoops to jump through, but it is a great way to make sure you are personally protected.
Limited Liability Company (LLC) will also protect your personal assets It has a lot of the same benefits as the S Corp, with a few less of those hoops to jump through in the form of requirements. Establishing an LLC will ensure (if maintained properly) that your business is separated from you personally.
Once you’ve properly formed a corporation or an LLC, you can have ease of mind knowing that you have taken the correct measured to protect yourself and your personal assets.
Here at Prime Corporate Services, we specialize in making sure that we set you up with a business entity that is going to be right for you.
Request a free one-hour consultation with our skilled advisors to ensure you have everything that you need to be successful.