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Why Form A Legal Entity?

Like many small business owners you may not feel that forming your business as a legal entity is necessary. You may feel that the business is too small or the process is too expensive. The real question isn’t the size of your business or how much it is worth.

Benefits

The real question is how much you have to lose. The benefit of forming a legal entity is that it offers personal asset protection. If you don’t form a legal entity the law views your business as a sole proprietor. One of the biggest benefits of forming an LLC or Incorporating is that your business becomes a completely separate entity from you. In the unfortunate event that your business is sued, a judgment against the business does not extend to your personal assets, only your business assets are at risk. Your personal assets such as your house, car, boat or savings remain out of reach.

Forming a separate legal entity does not protect you from rights that you may sign away. For example, when your small business gets a loan from a bank they will require you to sign personally as well as corporately.