You need a corporation for a number of reasons, and I should clarify and say, “a corporate entity.” There are lots of different types of entities and different types of corporations but for purposes of discussion we’ll just say, “a corporation.”
When you go into a business, one of the concerns – There are really 2 reasons why you would need it, one it involves tax issues, and I won’t dwell too much on that right here because it’s pretty complex and it’d take longer than a few minutes. But that’s one reason and we’ll set that aside – The other is to protect you from liability. If I… As an individual, I own assets. I own a car, I own a house, I own some investment properties and so on. Well if I go out and start a widget business, and I’m going to manufacture widgets, then there’s a possibility that when you’re in business that you’re going to get sued. Somebody’s going to claim that you breached a contract; they’re going to sue you. Somebody’s going to slip and fall on your property; they’re going to sue you.
And if they sue me and I’m running a business in my own name, Rulon Munns, then that means that if they are successful in that lawsuit, that to collect on it they can take away my personal assets. Cars (not usually to your home in Florida if it’s homestead but), your other properties, or your assets. Well you don’t want that to happen.
You want to protect your personal assets from somebody getting to them because of a lawsuit or thinking they can get to them and using a frivolous lawsuit as leverage to get money out of you. Well I don’t get that protection if I do my business as Rulon Munns or, you know, Joe’s Widgets.
To protect yourself you form a corporation. A corporation or it could be a limited liability company and there’s different types of corporations and s-corporations, and 501(c)3 (for non-profits) and so on, but… You form an entity (again we’ll call it a corporation) which is a separate legal entity. And it could be Rulon Munns, Inc.
Rulon Munns, Inc. is a legal entity. A different legal entity from Rulon Munns as an individual. So Rulon Munns, Inc. now runs the widget company. And I may even call it Joe’s Widgets, but the owner is Rulon Munns, Inc. Well Rulon Munns, Inc. does not have title to my cars, my house, and my investment properties.
You want to protect your personal assets from somebody getting to them because of a lawsuit or thinking they can get to them and using a frivolous lawsuit as leverage to get money out of you.
[If] somebody sues me in my corporate entity and says that I did something bad and they win and I owe them $100 thousand, the only way they can collect against me to fulfill that judgement of $100 thousand is assets in my corporation. Which means they cannot get to all my other assets that I own personally, or assets I own in other corporations. So it limits your liability or exposure to potential lawsuits, and creditors, and people who slip and fall and want to file a suit against you to try to get money out of you. You’re protected by having that corporate entity run your business.
It’s very simple to do if you don’t have a lot of tax implications, which most people don’t. It doesn’t take long, but I recommend it because you need that protection from liability.
– Rulon D. Munns is an experienced real estate attorney and managing shareholder of Bogin, Munns & Munns, a full service law firm with offices in Orlando, Clermont, Kissimmee, Orange City, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida. He welcomes questions and comments regarding the above and can be reached at [email protected]
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