Starting a small business is a complicated and difficult endeavor. One big decision you face as a new entrepreneur is whether to form a business entity, or simply launch the business in your own name.
In this blog post, we will discuss five key advantages of forming a business entity before you start printing those business cards.
1) Limited Liability Protection
The primary advantage of a legal business entity for any small business owner is the shield it offers for personal assets. When operating in your own name, or as a “sole proprietorship,” you are the one responsible for all claims against “the business”. That means individuals that have a claim against your business have a claim against your personal bank account, and even your home.
When operating properly through a business, such as a limited liability company (LLC), your personal assets are totally off of the table in the event of claims. That means, if someone trips and falls on your property, or if your business owes a debt, the only thing the lawyers can go after are the assets within the business’s ownership.
2) Facilitating Future Growth and Collaborations
Entrepreneurs often harbor aspirations for business expansion or collaborations. A legal entity provides the necessary framework for such endeavors. By establishing an LLC or corporation, businesses lay a structured foundation that simplifies the addition of co-owners, investors, or potential partners.
Just as you can buy stock in Walmart and become a partial owner on the New York Stock Exchange, starting a small business allows you sell stock or ownership interests to future partners. This is important as your business grows, especially if you need to raise capital to expand new developments.
3) Presenting a Professional Image
In any industry, professionalism significantly influences customers’ decisions. Establishing a legal entity, such as an LLC or corporation, allows businesses to project themselves as distinct and credible entities. This professional branding distinguishes businesses from competitors and fosters trust among potential clients. A well-structured business entity enhances customer trust, instilling confidence in the reliability and credibility of the services offered.
4) Compliance with State Regulations
Florida and many other states require individuals who want to use a trade name, such as “Eddie’s Electrical,” to either form a business or register a doing business as name (DBA). Forming a business, such as “Eddie Electrical, LLC,” allows business owners to take advantage of lawfully using a trade name.
The consequences of failing to comply with this law can be significant. For example, a business that fails to incorporate or register its name may be unable to use the court system to enforce a contract until it complies with the statute.
5) Access to Financial Services and Collaborations
Collaborations with vendors and access to specialized financial services often necessitate a legal business entity. Forming an LLC or corporation may open the door to favorable banking terms, exclusive corporate accounts, or preferred relationships with suppliers. This legal organization streamlines transactions, enhances credibility, and fosters beneficial collaborations within the industry. Accessing specialized financial services and establishing credible partnerships is crucial for businesses aiming to thrive in a competitive market.
Closing
Creating a legal entity is a fundamental step for small business success. The advantages range from safeguarding personal assets to enabling growth, projecting professionalism, ensuring compliance, and facilitating crucial collaborations. It’s a pivotal strategy for fortifying businesses against potential risks while paving the way for sustainable growth and success in today’s competitive business landscape.
DISCLAIMER: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
READY LEGAL 