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“Making it Official”
Posted in: Uncategorized by Josh Andrews on July 13, 2009
Many entrepreneurs make money with their ideas before they ever “make it official” and form a company. If you ask ten different people when you should “make it official”, you will likely receive as many answers. Here is my take on when it is time to make “make it official”.
If you have an idea that makes money and requires no overhead and you will never have customers or clients coming on your property or who might be angry about something you (or someone who works with or for you) sell or do, you are probably okay to operate as a sole proprietor (or a partnership if there are two or more of you).
If, however, you will have property, employees, customers, vendors, independent contractors, or any other relationship outside of yourself to make your business venture succeed, you might want to consider “making it official” and forming a company separate from yourself.
All the available legal business entities do one thing for the owner: protect from liability. If you decide to “make it official” and form a company for your business venture you will be protected from claims by employees, independent contractors, vendors, actions taken by those in your employ, injuries incurred while on your property and contract liabilities. Essentially, when you create a company separate and apart from yourself, you have created a way to protect and limit your investment in your business.
It is important that all entrepreneurs wisely consider creating a shield to separate their personal assets from their business assets. It is the only way to ensure that the investment you choose to make in your business is the only investment you make. Without proper planning, you can unintentionally invest everything into your business because of one mistake.
That is not to say that when you create a company you are protected forever. You must be careful to maintain the appropriate company formalities, make sure your company has enough money to exist apart from you, the owner, and make sure that you keep all your personal activities and the activities of the company separate.
The reason for the formality requirements is to keep you, the owner, from inadvertently subjecting yourself to personal liability. For instance, you must always sign agreements for the company in your official capacity with the company. If you neglect this important formality, you could subject yourself to personal liability related to your personal signature on the document.
I would also encourage you to “make it official” with the advice and ongoing counsel of a qualified attorney. You don’t want to take shortcuts playing with your assets. If it is time for you to “make it official”, you want to do it right the first time.
