Why You Need a Legal Business Structure

So you have an idea for a business...great!

Now what?

Let's assume you have decided that your idea for a product or service is something worth selling. What do you plan on doing with the money? Who gets to claim the income? What happens if your product accidentally causes someone harm?

These are the types of questions that entrepreneurs encounter inevitably as soon as they begin conducting business. So is there an answer? Read on to find out.

Why create a business entity?

There are many reasons to create a business entity, but one of the most essential is protection from liability.

It is helpful to think of your entity as a liability insulator. This means that the owners of the business can be protected from claims against the business for harm the business caused.

What do I mean by "protected"?

Unless you're in business with the mob, the goal of liability protection is to keep personal assets (cash, property, investments, etc.) from being exposed to claims for business activities. If you're in business with the mob, this blog post isn't for you.

Think of it this way: Let's say I operate a lemonade stand. And I'm also a billionaire. One day, someone comes to my stand and orders a tall, frosty glass of fresh-squeezed lemon refreshment. I make up the drink, but I forget that last night when I was cleaning up, I accidentally broke a glass, and some shards got into the lemon squeezing machine. My customer gladly pays and walks away enjoying their lemonade. Only a few sips in, they realize their lip is cut, and find shards of glass in the cup. Now I have a problem.

If my lemonade stand is not its own entity, e.g. an LLC, corporation or limited liability partnership, then I am personally liable for the harm I caused, and all my assets, including my billions of dollars, are potentially available for recovery for the injury caused by the glass in the cup.

If my lemonade stand was is its own entity, then the business is responsible for the injury, not me personally, as long as I'm acting on behalf of the business. That's the "limit" in "limited liability company."

Which type of legal structure is best for your business?

Answering that question depends on several factors, and you really need to consult an attorney who specializes in structuring businesses to get the best advice.

If you are looking to start a business and need solid advice before taking steps into the unknown, feel free to email or contact LINDSEYfirm via the channel that suits you.