Tip #1: Sole proprietorship v. corporation

TIP #1

Up until recently there were only two extremes for how to run your business, as a Sole Proprietorship on one end and a Corporation on the other. A sole proprietorship is just you operating your business as yourself. It’s convenient and easy. You are not having to file anything but there is no legal protection. If your business gets sued, you get sued. For that reason, it’s typically the worst way you can operate your business.

EXPLANATION

Operating your business is always a balance of convenience versus protection. A sole proprietorship is the most convenient form because don’t have to file anything. You can buy assets in your personal name and your bank accounts are in your name. At most you just file a Doing Business As (dba) with your local county and you’re done. It’s easy and low maintenance but there’s no difference between yourself and your company.

Your company may be operating under a different name (you probably have your company name on the side of your truck or on your company building) but from a legal perspective, there’s no difference. If your company gets sued, you get sued. If a lawsuit troll or grumpy client sues your company, your personal assets are subject to that judgment if they win. Jake may have successful plumping “doing business as” King Snake Plumbing on the sign, but if that company gets sued because he busted a pipe that flooded the customer’s house, it’s Jake’s personal assets that will pay the judgement.

Practical and Actionable Takeaway: Don’t be a Sole Proprietorship. Convert the business to an LLC or Corporation.