Incorporated or not

[Janice DeMille]

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]

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]

talk to an attorney. explain the situation and see what they say. Might not hurt to check with your accountant too.

Don

[Bill Mecca]

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]

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]

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]

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]

Originally Posted by Bill Mecca

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]

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]

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]

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]

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]

Originally Posted by Bill Mecca

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]

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]

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.