A Horror Story
Are you still operating your business as a Sole Proprietorship or under a mere DBA without the protection and insulation of a corporate structure?
Why have you not incorporated your small business or self-employment?
The tax advantages alone can put thousands of dollars in your pocket every year but the best reason to consider incorporating has nothing to do with tax reduction and everything to do with asset and personal protection.
This debacle actually happened but naturally we’ve changed the names to protect the victims. A few years ago a guy named Jim decided it was time to stop working for someone else and start working for himself. Jim set up his own tree cutting company; a good one with many happy clients and was showing a profit even in his first year, had all the work he could handle and was developing a fine business reputation.
Jim had a number of employees, among them a young fellow named Andy. After a storm, Jim got a call about a damaged tree, so he sent Andy, his manager, out in a company truck to handle it. This job turned into several hours of lucrative labor and by the time the job was finished it was rainy and dark, the roads were slick and Andy was tired. As luck would have it, another call came in as Andy was heading home, so Andy saw another chance to make some good overtime pay and happily set out to the jobsite. Andy thought about stopping for a cup of coffee and a bite to eat but was eager to get the job finished. As he drove through the slick streets, Andy noticed the brakes in the company truck weren’t working properly and remembered the mechanic mentioining the brakes the last time the truck was taken in for service but both Jim and Andy had been so busy with work they just forgot to get the brakes repaired. As Andy approached a stoplight, he was in trouble because the brakes went soft and spongy, then failed and the truck collided with another vehicle. Andy was uninjured but the driver of the car he hit died at the scene.
Jim’s insurance policy covered all the medical costs but neither his truck or personal liability coverage were enough to take care of the the size of the judgement awarded to the deceased’s family in the inevitable lawsuit. The result of course was that Jim suffered devastating financial loss and as the business was a Sole Proprietorship, he had to use all of his personal savings to satisfy the claims of the lawsuit and file a bankruptcy which destroyed the business and even cost Jim his house, his cars, his life savings, his retirement account and left him destitute. Jim and his family are now on public assistance and food stamps while he works part-time at a local convienence store.
This scenario has happened, can happen again and it can happen to YOU! You read every day about how often lawsuits have become in our society and yes, even frivolous lawsuit must be defended aat your personal cost with no guarrantee of recovering legal fees so if you are a Sole Proprietor, like Jim, why would you want to expose yourself to the risk of losing your personal assets from a business-related lawsuit? If you have employees as you most likely do, you can be held responsible for their actions and may have to pay for them if you lose a lawsuit. “But I don’t have any employees”, you may well say! Jim rather than Andy might well have driving in the rain that night and it could be you who is the cause of unintentional damage or other business-related accident. The Bottom Line is this: If your business is a Sole Proprietorship you need to incorporate because all your personal assets are at risk so you MUST make the move from the world of Unlimited Liability to Limited Liability, which only a corporation can offer. Incorporate NOW through FINANCIAL FREEDOM RESOURCES!