If you are the sole proprietor of your business, we would like to bring some important points to help you moving forward so you can make a more informed decision. Even if you have already started as a sole proprietor, you still have time to make changes and these are some of the things to consider.
1. Personal Liability
First, it is advisable to have a legal entity to protect yourself from personal liability. Even if you have been operating a business as a sole proprietorship, you may have acquired assets for the company which as a sole proprietor, belong to you as an individual. However, you can make changes to your business designation at any time. In fact, the assets remain in your name until you transfer them to the corporation or LLC.
2. Separate Personal and Business
If you change your designation to an LLC or a corporation, it is very important to make sure that there is a distinction between your personal and business and that they are kept separately. Let me emphasize that again... It is crucial to keep your business assets and liabilities separate from your personal affairs.
For example, you must maintain a separate company bank account and not commingle your personal money with the business’s funds. If you are using credit cards, set up a proper expense reporting system to claim business reimbursements. Without a clear line between your company and personal bank accounts, you run the risk of losing the legal protection of the corporation or entity.
It is worthy to note that anything purchased in the corporation’s name and for its use remains the property of the corporation, even if you are the owner of the company. However, if you have started operating as a sole proprietorship, once you create an entity and then transfer assets to the corporation, IRS rules stipulate that you have to assign a fair market value to the assets for the purposes of taxation; in exchange for that transfer, you would receive an equal value of stock or equity in the company. This is definitely an area to consult both a lawyer and an accountant.
These complicated, yet in some cases necessary changes to your business can be confusing, and that is why it’s important to have an attorney help you decide which type of entity to start or move to so that you can make informed decisions and avoid any costly mistakes.
Review or Start Your Business Entity with LegalShield
With Launch by LegalShield, choosing the right entity and forming your LLC or Corporation is made easy by having a LegalShield attorney on call. Get started today by signing up at www.robinsoninsurance.wearelegalshield.com or calling Robin and Sonia at 754-300-4544.