Sole Proprietors: Easy Target for Lawsuits

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NCH, Inc. warns antiquated business structure is least advantageous to businesses, and potentially very dangerous.

Nevada Corporate Headquarters, Inc. warns antiquated business structure is least advantageous to businesses, and potentially very dangerous.

One of the most frequently asked questions by new business owners is “What form of business entity should I start my business with?” Many people believe that because a sole proprietorship is the easiest to start-up, it is the best. Well, that couldn’t be more wrong! Sole proprietorships may indeed be the easiest to set-up, but they are also the most dangerous and least advantageous type of business structure available in America today. Each and every year, more unfortunate sole proprietors learn this lesson the hard way.

A Sole Proprietorship is a form of business that is not separate from the owner/operator. If you have not taken the time to set up another business entity, your business venture is by default a sole proprietorship. The disadvantages are numerous. As a sole proprietor your personal assets are indistinguishable from your business assets, and therefore at risk for your business liabilities. In the Eyes of the Law, "the universal rule is that the sole proprietor is personally responsible for all liabilities of the business."

For example, if you own a plumbing business and have an accident within a client’s home, that client has the ability to sue for everything that not only the business owns, but also what the owner of the business owns. This means your personal savings, checking, home, car, retirement, etc. are all at risk. Another more common example is when a business fails to pay suppliers, banks, or other bills; the owner is personally liable for the unpaid business debts.

As you can see, even though a sole proprietorship is simple to get started, it can also be an extremely dangerous way to operate your business, especially if the work you do might result in heavy debts or liabilities from lawsuits. Since the United States is home to over 90% of the world’s lawyers, it is safe to say that this is a large and unnecessary risk to take as a business owner.

“By incorporating, you will legally form a separate entity whose assets remain exclusive. Consequently, if a lawsuit threatens your business, it cannot include your personal assets” said Skip Stefanelli, Director of Corporate Planning for NCH. “Whether a Corporation or LLC (Limited Liability Company) is best suited to your individual business needs, they both provide an affordable alternative to sole proprietorships that will shield personal assets from business lawsuits. Don’t forget, in addition to providing great personal asset protection, these legal entities have numerous advantages that can reduce your taxes substantially”.

About NCH, Inc.

Nevada Corporate Headquarters, Inc. has formed more than 30,000 corporations and LLCs in all 50 states over the past 14 years. To receive a free consultation and materials regarding incorporating, call 1-800-508-1729.

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Christopher J. Bache
NCH, Inc
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