Monday, October 31, 2011

Business Incorporation - Why It Is Necessary

When starting a business, the first step should always be to first determine the best ways to protect yourself and your assets from being lost due to unforeseen problems and challenges that could come up when operating a business.

The first and most important step is business incorporation. Business incorporation involves setting up a separate legal entity to be the operator of the business. You can be an owner of the entity and you can also be actively involved as a director, officer and agent of the business. When you incorporate, it is the corporation that is party conducting the business. When you are representing the business, you are acting as an agent or employee. What this does is it creates a layer of protection between you personally and the business activity.

It is business activity that can give rise to liability. Lets say your business enters into a supplier contract and there is a dispute. Or, another example might be if your business has a store and someone slips and falls. Or, say you have a rogue employee who sues the business for wrongful termination. In all these cases, the party that needs to address the dispute is the legal entity business. Without business incorporation, it would be you personally who would be the target of the problems.

And, if in the end of any of these kinds of disputes, you are found liable, then your personal assets are at risk for making good on the liability. On the other hand, if you run your business through a separate legal vehicles such as a corporation or a limited liability company, then it is the company's assets that are at risk- but not your personally.

Because business disputes and challenges are inevitable in almost any entrepreneurial venture, this protection is so important. Furthermore, with the substantial rise of small business lawsuits (a trend that is only continuing), this becomes even more essential for business owners.

Business Incorporation can be handled as an administrative matter with the state agency that processes formations. You can handle it yourself but it is critical that you learn all the specific requirements because an improper incorporation can put your liability at risk. Another option is to hire a lawyer or for a more affordable alternative, you can use a reputable incorporation services provider - just make sure they are experienced.

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