Should I Incorporate My Business?

If So, How Do I Maintain Its Protections to Avoid or Decrease Personal Liability?

  • Incorporate your business to avoid or lessen personal liability.

    If you are a sole proprietorship or general partnership, then all of your personal assets, including your house, car, savings accounts, etc. (subject to certain exemptions and certain protections for your home if in place) are at risk, if you should be sued.

  • How does personal liability for claims occurring at your business arise?

    For example, if you or one of your employees, in the course of employment, injures another person, that person may seek money damages in a court action against you. Other examples include someone slipping and falling in an entrance way, a customer who feels that you may have committed some negligent act, e.g. a violation of privacy that gives him or her a right to money damages. Some of these risks can be covered by liability insurance, but it may not be adequate for the amount claimed or may be subject to exclusions. Both sole proprietors and partnerships are liable for the acts, including the negligence, of their employees. Likewise, partners are liable for the negligent acts of other partners.

  • Incorporating your Massachusetts business can avoid or decrease your personal liability.

    When you properly incorporate in the Commonwealth of Massachusetts, you have created a new legal person or entity completely separate, if done correctly, from your own person and your own personal assets. A person, seeking to obtain money damages from your business, can reach only assets of the corporation and not your personal assets. In other words, the law recognizes and creates a business entity known as a business corporation that is separate from the individuals who invest in it as shareholders. Those shareholders will only be liable to the extent of their investment paid into the corporation, provided they both properly set up and maintain it.

  • Other advantages to incorporating your business.

    There are a number of other advantages to being an incorporated Massachusetts business. There is flexibility in dividing your business. Corporate stock provides an ease of transfer of interest in the business. You can divide up the business among family members or others. You can give different types of rights with different kinds of stock e.g. preferred or common stock if it is a C corp. In addition, use of the corporation may make estate planning easier in making gifts of stock in the business to family members. The corporate form may make much simpler the sale of the business to others if at some point a sale is contemplated. If the business needs to raise more money, shares of stock may be sold to “Angel investors,” venture capital firms, and eventually the public. Corporations are said to have more lasting power since in theory they may have perpetual existence.