As a business and corporate law attorney I find it interesting that many business owners do not understand there are significant advantages to forming a separate legal entity, such as an LLC or a corporation, to run a business, but fail to realize the full benefit these entities can provide.
As a way to relate why it is important to get advice from a corporate attorney here is a story told of a poor farmer whose friends all told him he should buy a horse to help on the farm. With a horse, his friends said, the farmer could grow more crops and relieve himself of some of the hard labor required on the farm. So the farmer saved up his money for many years to purchase a prize horse. After he purchased the horse, however, the farmer realized that he did not know how to use the horse to help with the farm work. He was too embarrassed to ask someone, and so he continued to do all of the farm work alone. The farmer failed to realize the full benefit of the powerful animal he had worked so hard to acquire.
One significant advantage to using a corporate form is that it can keep a person from being personally liable for a business obligation. For example, if an LLC is sued for a breach of contract, the business owners often cannot be sued so long as they properly used the LLC in running the business. Simply having a corporation, however, does not provide sufficient protection. The people owning the business must also properly disclose the existence of the corporate entity, usually by using the proper designation such as “LLC,” “Inc.” or “Corporation.” It must be clear to other people that a person is operating on behalf of a corporate entity.
By way of illustration, suppose that John Doe forms the entity Acme, LLC for operating his farm. If Mr. Doe signs a contract for the sale of crops on behalf of Acme but only uses the name “Acme” instead of “Acme, LLC,” then Mr. Doe risks being personally liable for the farm crops and, in the event the farm breaches the contract, Mr. Doe can be sued.
Many potential problems can be avoided by simply using the proper corporate designation on contracts and other documents. Of course, there are other things business owners should be careful about to protect themselves, such as not commingling business assets with personal assets and being honest in business transactions. If you are starting a new business or have questions about an existing business, we have experienced business and corporate law attorneys that would be glad to meet with you to discuss ways to help yourself and your company.