It doesn’t get much shorter and sweeter than this. Any time you’re looking into a new venture – be it a small or large company, either you’re working for yourself, looking to outsource a little work, or you’re looking to hire just a few people under you, you should always think about protecting yourself as much as possible. Over the years you have probably acquired a few assets that you don’t want to part with – you have some cash in the bank, you probably have a steady income, and you may even own a home. The bottom line is, you have a little bit to show for yourself and you definitely want to protect that when you are starting your new venture. But it’s just a small company you think, so why is this so important? Let’s use an extreme example to show our point:
Let’s say you start a Web Consulting Company. It’s a small, one person operation and you are the programmer, marketer, etc. You work for yourself. When you hire a new client you execute a contract with that client which contains the terms and conditions of the work that is to be performed.
You get the work done and are ready to turn over the final product to the client and get final payment for your work, but when this is to occur the client says that you haven’t performed according to contract – that you are trying to pull a fast one on him. Though you may be in the right and have done all the work, he can still sue you and it will go to court where you will both present your cases.
If you are operating under your own personal name (or a sole proprietorship / DBA that you operate under) then all of your personal assets are exposed in this lawsuit. If for some crazy reason the client wins, you and your assets are in trouble. However, if you form a company as an LLC or Corporation for example, then your personal assets are completely separate than your corporate assets and only your corporate assets would be at risk in a lawsuit against your company.
There are various types of entities when considering which would be the best for you and for your new business (or your current business if you are looking to create a company instead of operating personally), and we will look at those in another article.
Get the knowledge, and stay protected!