Whether you started (or purchased) your own business because you had a great idea to offer the world or because you wanted to be your own boss, there’s more to consider than branding and business cards moving forward. What happens down the road if your company is sued for breach of contract or someone sustains an injury on the property? Would your personal assets be vulnerable to the lawsuit settlement?
The short answer is: it depends.
Obviously, it depends on how the judge rules, but it also depends on how your business is structured. Incorporating is something you can do ahead of time to protect your assets, even if the judgment is not in your favor.
You could run a business without incorporating (e.g. sole proprietorship and DBA) and just receive the revenue as individual income, but the primary advantage of owning an incorporated business (or incorporating the business you have now) is the liability shield that comes with it.
What does it mean to incorporate?
Incorporating means the business is recognized as its own entity by the state of Texas. As a result, any contract binds the company and not the individual who owns the company. In other words, any breach of contract that occurs or any injury that happens on the property or as a result of a business interaction will be filed against company assets rather than the business owner’s personal assets.
Without incorporation, there is no legal distinction between business and personal assets for the business owner, leaving the owner’s home and family assets (as well as company assets) vulnerable in a lawsuit scenario.
What are the different types of incorporation?
The following business structures provide the liability shield mentioned above:
- S-Corporation — a taxation choice (not a business structure) that allows pass-through income, losses, deductions, and credits to shareholders of a corporation
- Limited Liability Company (LLC) — a business entity that is legally separate from its owners
- Limited Liability Partnership — must have two or more owners, all of whom receive liability protection of some sort
Each of these situations require the business to file a certificate of formation with the Texas Secretary of State.
What’s required for a liability shield?
In order for the liability shield to be fully in effect, a business must keep corporate formalities up to date.
- The company must be incorporated
- There must be regular meetings (documented by meeting notes or an agenda)
- A company agreement must exist
- Business financials are kept separate from individual accounting
Why you need a Burleson lawyer to help you incorporate
Online legal help does not provide guidance in setting up all of the formalities for a liability shield. It may provide recognition from the state, but there will not be anyone to help you with a company agreement or setting up a business bank account.
Visit a Burleson business attorney at Lovelace Law, P.C. to ensure you have proper documentation and to establish the corporate shield so your personal assets are protected.