As a new business owner, you’ve got a LOT on your plate.

You’re busy setting up your new website, signing new clients, developing your marketing strategy, and let’s not forget trying to squeeze in some time to live your life. (Yep! you still need a life outside of work 😉)

Getting all of these things in place while launching your business is going to feel like a LOT of work. You might not like to hear this, but there IS one more thing you *must* add to your to-do list.

And hey, seasoned business owners 📢 Listen up too, because there’s a good chance you forgot this one when you created your business initially. 

In the process of starting your business, you may have heard your fellow entrepreneurs talk about creating a separate entity for their business. 

If you heard the words, “business entity” or “LLC” or “corporation” and the legal jargon made you sent you into total #overwhelm, you’re not alone.

But you are also not off the hook.

You’ve got to look past the jargon to realize that creating a separate entity for your business is essential to protecting yourself as an entrepreneur.

If anyone tells you that creating a separate entity can wait, run the other way🙅🏽‍♀️.

The earlier you can get this in place, the better.

It may seem like a lot of work now but trust us…your business is going to scale and grow SO quickly. If you don’t set this up right away, there’s a good chance it will fall to the bottom of your priority list. And that can end up doing a LOT of damage, sis. 

So don’t wait a few weeks, or a couple of months, or WORSE a couple of years to get this set up.

Let’s get you caught up on the benefits of creating a separate entity for your business, and discuss whether an LLC or corporation is right for you. 

What are the benefits of a separate business entity?

The main (and most important!) benefit of creating a separate entity for your business, whether that’s an LLC or corporation, is that you are separating your business from yourself as an individual.

You are not your business and your business is not you.

You are you, and your business is your business.

Got it? 

Good stuff.

Creating that separation between the two is important for your work/life balance AND for your legal protection.

Establishing a legal divide gives you liability protection. That way, if someone is trying to hold you liable for damages they suffered due to services you’ve provided, you are shielded from personal liability.

One example of this might be if you’ve taken out a loan for your business, and the debt collector is looking to collect.

You’ve gotta pay up, girl! But NOT from your personal bank account I hope 😬.

Another example would be if a client interpreted your services as medical advice, mental health advice or even financial advice and suffered damages. They might come after you and your business. But here’s the thing:

In either of these situations if you don’t have a separate entity for your business, everything you have is on the line and can be accessed when someone is taking legal action against you.

All of your personal assets, your house, your car, other businesses you run, your intellectual property and the list goes on and on. 

You’ve worked way too hard to risk losing those assets, sis.

You’re building your dream life by being the CEO of your dream company, so don’t get those twisted and lose them both in one legal blunder. Establish that legal boundary between the two now.

The thing is, you are not required by law to create a separate entity in order to start a business. 

But friend, the risk you’re taking by not having one in place is HUGE.

Because we’ve said it once and we’ll say it again – it’s not a matter of if you are going to experience a legal problem in your business, it’s a matter of when. 

This is not to scare you, but to help you understand that being a business owner means you will deal with legal problems at some point or another. It’s simply inevitable.

There are two kinds of business owners when it comes to dealing with legal dilemmas:

1. The kind of business owner who is prepared, confident and ready to take on the world knowing that they are protected👸🏽
   
   or
   
2. The kind of business owner who is scrambling, desperate and scared because they need to find someone at the last minute to help them clean up the mess and salvage what’s left of their business 🤯

What kind of business owner do you want to be?

Option A?

We thought so!

Preparation breeds confidence. Prepare your business well by creating an LLC or corporation when you’re engaging in transactions with clients, otherwise you are your business and your business is you. 

It’s also important to remember that this goes both ways.

What that means is, if you get into legal trouble in your personal life (crossing fingers and toes that this never happens to you, friend🤞🏽), this separate entity will protect your business assets from being accessed.

Protect your business and protect yourself. You are important. The beautiful life you’ve built for yourself is important. Your dream business you’ve created from scratch is important. Don’t gamble with either of them by neglecting to create that necessary separation!

Establish Biz Credibility

Another huge plus about forming an entity is that it allows you to establish credibility. Being recognized as a registered entity within your state or jurisdiction offers a certain level of trust and professionalism.

Having an established entity screams, “This girl knows what she’s doing. She’s legit 👊🏽.” Working under your name without setting up an actual business? Potential clients and connections may see you as just a *tad* less serious.

Even though it’s not necessary to be incorporated or have an LLC in order to expand your team, it will make your business stand out as being a reputable place of work to potential team members.

You will be able to stand out in the sea of online entrepreneurs as someone who takes the legal protection of their business and their employees seriously. 

As you build out your team, work with more clients, hire more contractors or employees this increases your risks naturally, because you are adding value to your business as a whole. 

If this is done under you personally that means that every single one of these new collaborators can seek damages from you. Personally.

Anyone else sweating at the thought of that?

*😰*

As your business grows it becomes even more important to have that separation. The more people you do business with, the more opportunities for legal dilemmas to come up, so don’t scramble when they do. 

Protect yourself now, and thank us later.

LLC vs. Corporation. Which one is right for you?

Now that you hopefully have a newfound understanding of the absolute necessity of setting up a biz entity, let’s talk how you’re going to do that.

You’ve got to choose between setting up an LLC or corporation.

I know this can be confusing for many, so let’s get to the bottom of these simple, but important distinctions.

An LLC is able to be owned by an individual or individuals (that’s you). If you’re an individual without investors or business partners, most of the time it makes sense to go the LLC route because you don’t have shareholders.

If you do have investors and business partners involved, then you’ve got to take the corporation route because those shareholders are all the owners of the business.

Still following?

Individual ownership = LLC

Shareholder ownership = Corporation

The main difference between these two options is that with an LLC, the formalities required by the government are much less complicated.

It’s a lot easier for an individual to maintain compliance with the LLC because there aren’t many formal obligations to keep up with. 

With a corporation there are generally more formal requirements. For example, being a corporation requires you to run your meetings in a certain way. Complying to these conditions allows you to maintain your corporate status. 

As you might’ve guessed both of these options have different tax implications. 

So – let’s talk taxes, shall we?

You want to make sure that you are consulting your tax professional (your accountant/CPA) about the tax implications as they relate to business owners in your jurisdiction.

It’s totally okay not to be the expert when it comes to these things.

Find an pro you really trust and get their opinion when making big decisions like this for your business.

Investing in building a solid foundation for your business always pays off. Get those experts in to lay the groundwork right off the bat!

Now what?

Whoa. We just covered a lot of ground. Maybe you’re feeling a little overwhelmed.

Breathe in….breathe out. You got this 💪🏽

Get your legal protection in place, and get it in place right away.

Need a little support getting started?

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Check out our ready-to-use, lawyer-approved, plug-and-play legal contract templates! So you can upgrade your client contract while staying Profitable & Protected™✨

Not sure where to begin? We’ve got you. Grab our FREE Legally Launch Handbook to get the legal lowdown on everything in entrepreneurship, without the confusing mambo jumbo. We’re serving it up straight & to the point. (Heads up: It’ll forever transform the way you view your client relationships!) Grab your copy now.

⁣*The information presented in this blog post is for educational & informational purposes only. This should not be a substitute for customized legal advice from a licensed professional in a private setting. If you need legal advice, please consult with an attorney. This is not a law firm.

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