All too often, I encounter successful entrepreneurs who consider their business ventures too small to worry about a formal business structure. In their eyes, Corporations and LLCs (Limited Liability Companies) are better left to those big businesses that have hundreds of employees and mazes of cubicles.

This way of thinking couldn’t be further from the truth. Any entrepreneur, even a self-employed writer or home-based jewelry designer, should consider forming an LLC or creating a corporation. And liability protection is at the heart of the matter.

The LLC and the Corporation (either S Corp or C Corp) protect an owner’s personal assets from any liability of the company. So, if your business happens to be sued (worst case scenario, I know), your personal assets, such as property or a savings account, are shielded from any judgment.

Of course, unless you’re a doctor or running a day care center, liability is probably farthest from your mind. After all, how can sitting behind a computer put you at risk of a lawsuit? But what if you unintentionally plagiarize someone’s work? Or you’re unable to pay some of your business contracts?

Certainly, those are worst case scenarios and more than likely, you’ll never run into legal problems. But, things can happen. And if you’re sued as a sole proprietor, then you’re sued personally. That means that everything from your children’s college fund to your retirement savings ⎯ is at risk.

The other important factor to know is that creditor judgments can actually last up to 22 years (11 years + 11 years). If you’re sued today, your personal assets will still be vulnerable for up to 22 years. So, while you might just be starting out without any significant personal assets today, you still need to mindful about protecting the assets you’ll have tomorrow. And I don’t have to tell you that a lot can happen in 22 years (just ask anyone who started out at Facebook).

Once you form an LLC or incorporate a business, your company exists as a separate business entity. This means that the corporation or LLC (and not you, the owner) is responsible for all of its debts and liabilities. This is what’s known as a ‘corporate shield’ and it will help protect you from any unexpected risks, as well as minimize the mental and financial impact on your personal life.

The bottom line is that forming a corporation can be pretty painless and affordable. For those of you who cringe at the thought of piles of paperwork, the LLC offers the same legal protection of a Corporation with minimal formality.

Choosing the right business structure for your business is a weighty issue and will ultimately depend on all the unique aspects of your particular business needs, vision, and circumstances. But no matter what entity you choose, taking a serious look at your legal structure is important and will help you scale far more smoothly (and avoid any legal/liability pitfalls) in years to come.

As always, CorpNet.com’s professional staff is here to assist you every step of the way… And once you know what you’re required to file, we can take care of the details for you!  If you have specific legal questions or concerns, you should consult an attorney for sound advice. After all, your business is worth it.

As an entrepreneur, you should take some time upfront to educate yourself on the benefits of forming an LLC or corporation. After all, both you and your business are worth it!

Please feel free to reach out to me with any questions to nakalp@corpnet.com ; I get you because I’m just like you and have been through this myself!

Good luck!

Nellie xo