View Full Version : Incorporated or not


Janice DeMille
October 29th, 2008, 09:38 AM
I am wondering how many folks out there are incorporated. We currently are but wonder if it is worth the extra expense and reporting complexity.

We carry insurance and limit our liability in our contracts.

Chris Davis
October 29th, 2008, 10:11 AM
If you have no employees, there's no good reason to incorporate.

I'm currently operating as a sole proprietor, but have three employees. I probably should incorporate.

EDIT: I see from your profile that you are partners with your sister. Then yes, it is a good idea for you to be incorporated since it limits your liability for her actions and vice versa.

Don Bloom
October 29th, 2008, 11:38 AM
talk to an attorney. explain the situation and see what they say. Might not hurt to check with your accountant too.

Don

Bill Mecca
October 29th, 2008, 12:56 PM
the way I understand it, employees or not, is incorporating can protect your personal assets if you wind up being sued etc. But the advice of an attorney is key, heck many of them have formed LLC's themselves. ;-)

Andrew Waite
October 29th, 2008, 01:43 PM
I have a partnership setup.. it will probably stay that way until we are quite a bit larger. Whether you form a S-Corp, C-Corp, or LLC, the main benefits are going to be personal asset protection and depending on how your business is setup MAYBE some tax benefits. The trade off will be however, the cost of incorporating, and an annual fee, I guess that depends on what state you incorporate in. My last business venture it was $800 a year in California.

For me, I'm just saying "FOR ME" it's cheeper and easier to just pay for liability insurance. It's hard for me to see what possible trouble I can get into where I'm being sued to the point where my home is at risk. If you can, maybe you should talk to a attorney because it's better to be safe than sorry.

Allen Plowman
October 29th, 2008, 01:49 PM
a worse case scenario: a pregnant woman trips over a tripod leg and does permanent damage to the baby, requiring it to need lifelong care. the lawsuit could go way beyond your insurance.

Andrew Waite
October 29th, 2008, 05:12 PM
That would be a little bit of a stretch. YES, it could happen. But, would the court find you negligent? Or just the woman clumsy? Sounds like a pretty frivolous situation to me. I'm cool with those odds, but others might not be, so like I said, better safe than sorry.

Chris Davis
October 29th, 2008, 06:44 PM
the way I understand it, employees or not, is incorporating can protect your personal assets if you wind up being sued etc.That's a common misconception. If *you* cause harm to a person or property, *you* are always liable for your own actions. It doesn't matter if your business is incorporated or not.

Using Allen's example - if that tripod was placed negligently by you, you can be certain that the plaintiff’s lawyer will sue both your company and you personally. An LLC will offer you no protection. However, if the tripod was placed by your employee, they will sue your company and the employee. In that case, having an LLC can protect your personal assets.

Either way, liability insurance is necessary.

BTW, you can ask an attorney or an accountant, but just remember that they would probably have a fiduciary interest in you forming an LLC (i.e. they would make money if you do) so take their advice with that in mind.

Dave Blackhurst
October 29th, 2008, 11:57 PM
Without getting overly "legalistic"...

Keep in mind a creative attorney can pull just about anything... and sue anyone for just about anything... most are after the insurance (presuming you have it), but don't count on them stopping there if you've got assets. And even funding a legal defense if you're right and win can be prohibitive. Remember the "million dollar pants" in the news not so long ago...

So too, a creative attorney can help you protect yourself and your assets if it's done before a problem manifests itself, but it will come at a price. Proper advance planning/structuring can save your bacon if the worst case scenario happens.

Even if you incorporate, you have to follow a lot of rules and regulations (paperwork!) to maintain the protection it can offer - so be prepared, find a good advisor, and triple check everything yourself to make sure you're protected.

Hope that doesn't make you paranoid, but if you're doing business in the USA when there are so many hungry lawyers, you're better safe than sorry!

Jim Michael
October 30th, 2008, 05:24 AM
Don's advice is right on. Only an attorney can address your specific risks and only an accountant can address your specific tax circumstances. You need to look at both before deciding on the type of business entity. While discussing with your accountant, get an overview of the reporting requirements - monthly, quarterly, annually. Also ask each about licensing issues (city, county, state), sales tax registration and reporting if applicable.

Bill Mecca
October 30th, 2008, 10:12 AM
FWIW I wasn't thinking personal liability I was thinking more of your company producing a video, and there being an issued and a suit being filed against the corporation. But as I said, consulting an attorney familiar with this area of law is the best way to go.

Chris Barcellos
October 30th, 2008, 10:34 AM
As an attorney who years ago did personal injury, I can tell you that, practically speaking, attorneys actually look for the "deep pocket", before they sue. People do not realize how many suits are not even filed because attorneys cannot find someone with assets or insurance coverage.

Second, as far as a corporate shield is concerned, there are methods of breaking through that shield too. One theory is the "alter ego" theory. It consists of arguing that the corporation itself is merely maintained as a shell for the individual to conduct his life "free" of what he should be liable for in the first place. Issues like corporate under captilalization come into play.

Third, the real point is, that while you may have perfect defenses, mounting those defenses is what costs money, and that is why insurance is so important to keeping yourself protected. Understand, too, that in most situtions, recovering attorney fees is not something that is available under the American system, so an insurance policy that requires that the insurance company defend you is what is most important. And---going back to point 1--- the irony is that the mere existence of insurance actually increases the potential that you could be sued.

I've always maintained that the law in California that required all motorists in California to carry liability insurance was directly responsible for the the litigation explosion, and actually had a detrimental effect on the ability of our courts to handle the litigation.

Chris Davis
October 30th, 2008, 10:34 AM
FWIW I wasn't thinking personal liability I was thinking more of your company producing a video, and there being an issued and a suit being filed against the corporation.Same answer - if you're the only person in the office (i.e. one man show) you are personally responsible for every decision you make, even if that decision is made under the umbrella of an LLC. If you make the decision to use uncleared copyright material in a production or reveal sensitive information in a video you will be held personally responsible.

Janice DeMille
October 31st, 2008, 07:48 AM
Thanks everyone for your answers. I believe I will leave it incorporated based and check my insurance coverage.

As always this forum is a great learning and sharing tool.

John Brinks
November 7th, 2008, 10:48 PM
you may want to consider switching to an LLC... in most states you do not have to file annual reports with an LLC, and you just file on your personal taxes...


just a though, if you want to be protected without the accounting hassles and expense of a C or S.

Nick Flowers
November 8th, 2008, 01:53 AM
If you are a Sole Trader in the UK you have the option of forming a Limited Company. This can have tax advantages - significant ones; although these will be eroded by the initial cost of setting up the company and the on-going increased accountancy fees. Also, the bookwork is greater and you need a trusted partner to be Company Secretary. All the advantages of Limited Liability are there, giving the protection outlined in the postings above, but all that is no substitute for good Third Party Liability Insurance. The situation is fluid as the Inland Revenue lost an important case recently (it went as high as the Law Lords) where a small company was accused of exploiting the advantages of Company Law to avoid/evade (not sure which) Income Tax. Having lost, the Revenue is nursing its grudge, and so is the Treasury. Expect new laws soon to plug the loop hole.

'Less than an Art, more than a Trade'

Shaun Roemich
November 8th, 2008, 09:36 AM
the way I understand it, employees or not, is incorporating can protect your personal assets if you wind up being sued etc.

My accountant advised me AGAINST incorporating as most contracts for purchase or service now contain a proviso holding you PERSONALLY responsible, contrary to the "historic" protections that incorporating has provided. She believes the benefits are outweighed by the costs and "hassles" of filing both corporate and personal income tax, at least in my situation.

Again, keep in mind I'm in Canada and this is the OPINION of my accountant. Your mileage may vary.