There can be significant legal advantages to conducting business through a business entity such as a corporation or LLC, rather than as a sole proprietor. The main legal advantage for business owners is limited personal liability for the company’s acts, debts and obligations. The tax implications of entity formation should also be reviewed. We often collaborate directly with CPAs to determine which entity is best suited to our client’s financial circumstances.
Many business owners prefer to form a corporation and are frequently surprised to learn that incorporation is not quite as simple as filing documents with the Secretary of State. In order to limit the liability of the owners, each corporation must keep excellent records, hold regular meetings of the board of directors and shareholders and follow stringent formalities required by state law.
If your business is not properly incorporated and is not compliant, the owners may be subject to personal liability for the acts of the corporation and creditors may be able to seize the business owner’s personal assets such as bank accounts, real property and personal property, above and beyond any capital already invested in the business itself.
Similarly, there can be significant legal advantages to holding title to real property in the form of an LLC, rather than as an individual. The main legal advantage for property owners is limited personal liability for claims by third parties including tenants. Any person owning income property should evaluate whether an LLC is right for them.