Isn’t it easier and less expensive to just use a sole proprietorship or partnership?
The main disadvantage of doing business as a sole
proprietor (one person) or partnership (two or more individuals) is
the risk of liability. You have no limited liability protection like you do
if operating in the corporate or LLC form. This means your personal
assets are subject to being taken if someone files a lawsuit and gets a
judgment against you. Also, you are not able to reduce the FICA
(15.3% self employment tax) as you may be able to do by using an S
corporation.
Practical Suggestion: If you are just testing a business idea or concept, it
may be okay to start as a sole proprietor or partnership for a short time until
you know if the project is going to work. However, keep in mind that if you
get sued during the time you operate as a sole proprietor, even though you
may incorporate or form an LLC later, you will have no liability protection
for events that occurred before you formed the entity.
Author: Robert Montgomery
Attorney Robert Montgomery has been counseling and incorporating businesses for more than 20 years. During that time, he's helped set up more than a 1000 corporations and limited liability companies (LLC's). He's a business owner himself and has been corporate legal counsel for numerous small business corporations. He's presented lectures and seminars on the benefits and procedures involved with incorporating or forming LLC's and how to operate them for maximum benefit. View all posts by Robert Montgomery
