Is My Small Business Putting My Family and Personal Assets at Risk?
A former client, who we’ll call “John,” always wanted to start his own landscaping company. He had worked for different landscapers since he was in high school and eventually began managing crews at jobsites. With this management experience and his savings, John thought he was finally ready to set out on his own.
John bought two trucks, two trailers, and all the necessary equipment. He hired some of his former coworkers, and began signing up jobs. John went to the Secretary of State’s website, filed paperwork for a d/b/a (“doing business as”) in the name of “John’s Lawncare,” and proudly stenciled this name on the sides of his business trucks.
What John was doing is actually the simplest form of business organization, and is known as a “sole proprietorship” (or “partnership” if there is more than one owner, or “principal”). In a sole proprietorship, the owner and the business are considered one legal entity. While the simplicity is attractive, it is a double-edged sword: in addition to being one legal entity for the purposes of profits, John and his little landscaping business were also a single legal entity for the purposes of liabilities, including debts and even lawsuits!
What this means is that John was personally liable for the loans on his trucks and equipment, wages to his employees, and any damages caused by his or his employees’ negligence. Personal liability means that, in the event John couldn’t satisfy a debt or judgement against him, his family’s home, their vehicles, their possessions, and their savings were all at risk.
With our help, John reorganized his business as a limited liability company, or LLC. An LLC is a separate legal entity from its owners (called “members”). This means that if debts are incurred in the business’ name, or the business is sued by someone whose person or property is injured, the members stand to lose only what they have invested in the business, but no personal assets. Of course, there are exceptions to this rule (for instance, members can still be personally liable for intentionally harming someone, and courts can “pierce the veil” if business assets and personal assets are not sufficiently separated.
Only a small business attorney can evaluate your unique situation, accurately assess your risk exposure, and determine whether forming a separate business entity is right for you. Contact us today to schedule a free initial consultation. We will be happy to help you navigate the complex world of business organizations from sole proprietorships and partnerships, to LLCs and PLLCs, and even C- and S-corporations.
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