BUSINESS OWNERS RISK IT ALL
BY NOT INCORPORATING

     While many new business owners find it simple to start their business as a sole proprietorship, they often underestimate the financial risk of exposing their business and personal assets as a sole owner rather than limiting their risk of financial loss by forming a corporation. A sole proprietorship is wholly owned by one person with no legal distinction between the proprietor’s personal and business assets. On the other hand, a corporation is a business owned by one or more people where the personal assets of the owners are kept separate from assets owned by the business, and therefore, are shielded from the business’s creditors. The business environment is full of unpredictable influences that can cause great pain to its owner.

It Won’t Happen To Me!

     What many sole proprietors fail to realize is that it does not take a major lawsuit to wipe out everything they own. Lack of planning, and the theory that “It won't happen to me!” has caught many business owners by surprise and subjected them to major losses. As a sole proprietor, many circumstances subject you to the risk of loss such as a family emergency or divorce; tax problems or levy by the IRS; a major competitor increases its market share; health issues or death of a family member, staff or friend; an accident or major lawsuit; loss of supplier or client; a change in laws governing your business; or a change in technology, to name a few. Such conditions can interrupt the progress of your business and, by far, the overwhelming reason to incorporate is to protect your personal assets, such as your home, car and family savings, from business debts and liabilities. Remember that when you incorporate, if your business falls victim to a lawsuit, an IRS problem or some other extenuating circumstance, no one can attach your personal assets. Consider the following example.

Personal Impacts

     Robert Axley, a general contractor, operated his business as a sole proprietor. While building a project that was to be complete within nine months he was called out of town unexpectedly when his mother became ill. Upon his arrival at his mother’s home he learned that her condition had worsened keeping Axley away from his business longer than expected. During his absence, he left Tom Solomon, the general superintendent, in charge of managing the business. One afternoon Tom went to lunch in a truck that was restricted to the construction site knowing that the truck was uninsured for off-site use. Furthermore, Tom overloaded the truck with improperly secured equipment. While in route to lunch on the city street, he broadsided a city bus causing severe damage to the company truck and bus and injuries to the bus driver and several passengers. Also, there was damage to roads, walks and a light pole when the unsecured equipment catapulted from the truck. Because the truck was not insured to leave the construction site, Axley suffered serious financial impact as a result of Tom’s actions. Axley lost his business, his home, and his savings which devastated Axley, his wife and his three children.

Add “INC.” To Your Name

     If you are thinking of starting a new business or you are already in business and have not incorporated, consult your business advisor. Remember that by adding “INC.” to the name of your business will limit your personal liability and avoid personal loss.

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