A Business-First Approach To The Practice Of Law

What are the Risks of Not Incorporating or Forming an LLC?

On Behalf of | Oct 31, 2019 | Business Law |

When forming a new business in Florida, there are several considerations involving choosing the most-appropriate type of legal entity for your company. For many small business owners and solo entrepreneurs, this includes the question of whether you should choose a legal entity at all. If it is just you, you and your spouse, or you and a trusted friend, do you really need to incur the time and expense of forming a business entity? Or, can you move forward without putting any formal documentation in place?

Can vs. Should: Understanding the Risks of Operating Without an Entity Structure

While you certainly can start a business without forming a legal entity, whether you should do this is another matter entirely.

Forming a Business Entity is Not a Legal Requirement…

There is nothing to stop you from going into business without setting up a corporation, limited liability company (LLC) or other formal legal entity. If you are a solo business owner, then you will simply be considered a “sole proprietor.” If you have one or more partners, then you will have a “general partnership” even though you haven’t filed any paperwork. This is perfectly legal, and sole proprietors and general partnerships are generally eligible to obtain business licenses, apply for permits and do the other things involved in running a legitimate business in Florida.

However, going into business without forming a legal entity carries certain risks; and, even for small business owners, these risks will typically far outweigh the relatively modest costs involved with forming and appropriately structuring a corporation, LLC or some form of limited liability partnership.

…But, It is a Smart Idea for Almost Any Small Business Owner

While there are a number of advantages to forming a corporation, LLC or limited liability partnership, one of the most-important benefits for small business owners is the protection against personal liability. If you form a limited liability entity, if you include the necessary provisions in your entity’s governing documents, and if you adequately maintain your entity on an ongoing basis, then your personal assets should be protected in the event of a lawsuit against the company. While there are some limited exceptions, the general rule is that individual owners are not liable for the debts of corporations, LLCs and other limited liability entities. This includes both contractual debts (i.e. business loans) and judgment debts (i.e. successful personal injury claims against the business).

If you do not form a business entity, then you (and your partners, if any) effectively are the business. If something goes wrong, you are the only one (or ones) available to be sued. This presents a substantial risk from day one, and it is a risk that can – and generally should – be avoided.

What Option is Best for Your Small Business?

So, should you form a business entity? If so, which structure should you choose? Both of these questions require a careful assessment of the particular facts and circumstances at hand; and, in order to determine your needs, you should speak with an experienced Fort Lauderdale corporate lawyer.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin