HOUSTON BUSINESS REVIEW

CYA: COVER YOUR ASSETS! Part 2
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here

. Many entrepreneurs are concerned about liability when starting their business. However, many of those same entrepreneurs fail to follow through on those concerns. Those concerns usually start with what type of business entity they should form. From a sole proprietorship to a corporation, entrepreneurs need to understand what each of these entities will mean for them and their business.

A sole proprietorship is the most used and inexpensive type of business entity. Most businesses start in this form because of the low cost and ease of formation. All it takes is a trip to the county clerk’s office and less than twenty bucks and you are in business. A sole proprietorship is a business that is owned and operated by one person. Typically identified as an “assumed name,” it is a way of operating a business under a different name other than the business owner. If you have a low risk business or intend to keep the business as small or part time operation, this could be a viable option.

The best thing about a sole proprietorship is the ability to have control and make decisions by yourself. You are the business and the business is you. There is no separation between the two. There are no requirements to maintain minutes or other formalities. You may file your personal tax return form 1040 and simply add a schedule C. Depending on the amount of income you make by running the business this can be simple and inexpensive option.

The same benefits of operating as a sole proprietorship also act as serious liability traps. Because there are no distinctions between the owner and the business, the owner’s personal assets are at risk along with the business’ assets. This means that if there is ever any liability that is associated with the business, it will be associated with you as well. Moreover, you will be taxed on your individual tax level, which means that if you have a lot of personal income (i.e. salary from other employment) and are in a higher income bracket, you will have to pay taxes in that higher bracket.

If you are operating a business with high risk you should not operate as a sole proprietorship. Furthermore, you have a lot of personal assets or your business acquires a lot of income a sole proprietorship should not be your entity of choice. When deciding what type of entity to start and seek legal counsel from an attorney that deal primarily with businesses.

Nothing in this article is intended as legal advice and you should consult an attorney before making any decisions.