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That's a valid point regarding partners and mitigating risk. If you're a one-man company, it's a lot easier to manage the risks, so forming a corporation may be

That's a valid point regarding partners and mitigating risk. If you're a one-man company, it's a lot easier to manage the risks, so forming a corporation may be superfluous. I think it depends on your product as well. The chances of being sued while providing a simple product like bingo cards is minimal. If you're providing a service to businesses, you stand a much greater risk of being sued. It's all a balance. BTW, I'm not suggesting that you should form a corp. Just to be clear on that. I do think this conversation is beneficial for the topic starter though. I hear the "weak corporations are worthless" argument a lot. I will say that our simple little corporation is holding up really well, and we didn't spend a bunch of money forming it. We did not use one of those insta-corporation sites though. We paid a local attorney, with whom we sat down and met with, to establish our corporation and provide guidelines for maintaining it. It cost us less than $1000. IMO, the bottom line with litigation is that it comes down to who has a bigger war chest. A weak corporate structure doesn't appear to be the shot that will sink our ship. Being unable to sustain the fight is the top threat. When the personal lawsuit hit the door, the first thing I did was investigate bankruptcy. It is possible to discharge debt resulting from a judgement, but it depends on your circumstances. I definitely lack the depth of understanding required to explain it fully, but the gist of it is that receiving a discharge for a judgement isn't always as straight forward as something like credit card debt. Anyone engaged in a business with non-trivial risk of legal exposure should understand the implications before dismissing the benefits of having a corporation.

larrik 16y ago
I'm not a lawyer, but I've been lead to believe that in the US at least, if you are the only member of your company (which I believe Patrick is), then no corporate structure is going to to protect you from liability. I think even with only 2 people it's a bit iffy (especially if the other person is your spouse). If you are by yourself, Sole Proprietor is easier and simpler for taxes and the like. LLC is more complex and may offer NO extra liability protection.
- damoncali 16y ago
  That's not quite true - I'd research that a little more. As far as taxes, a single member LLC can be classified as a "disregarded entity". In that case, the taxes are treated exactly as they would be for a sole proprietorship. The additional complexity of an LLC is just the state franchise taxes (which are usually quite low or zero at first) and a couple of documents - it's not a big deal.
- bradleyland 16y ago
  Well, as I have learned, anyone can sue you at any time. I could file a lawsuit against you right now, and you'd have to answer it in court. I've also learned that there are no absolutes. An LLC/S-Corp/C-Corp does not offer absolute protection, but it's not worthless either. There are "tests" that pass or fail, and that determines your individual liability. In our case, the impression I have developed is that if you're acting in the course of business, and you're acting in good faith, your corporation stands a good chance of protecting you. If you set up a corporation for the purposes of protecting yourself while screwing people over, your corporation probably will not protect you. The possible number of scenarios is far to broad to express as a "protection/no protection" dichotomy.
- bradleyland 16y ago
  As far as simplicity goes, consider this. As a sole proprietor, you must file a Schedule C with the IRS if you intend to take any deductions. Filing a Schedule C also dramatically increases your chances of an audit. Also, when you are audited, the audit covers all of your personal finances. If my corporation is audited, the audit does not automatically extend to my personal finances. Having a corporation actually simplified my situation, even when I was a one-man consultant shop. I've always maintained separate bank accounts for my businesses, which gives me a clearer picture of my business performance by isolating my personal finances from the picture. I find the required filing to be minimal in contrast to the added clarity. I can't make the argument that it requires less paperwork, but IMO, it does make the paperwork simpler.
  - joeag 16y ago
    You may also end up with schedule C income anyway if your legal entity provides you with a dividend or other payment outside your regular salary, and you are likely to want to do that anyway because non-salary distributions are not subject to social security taxes - saves you 15%.

larrik 16y ago

I'm not a lawyer, but I've been lead to believe that in the US at least, if you are the only member of your company (which I believe Patrick is), then no corporate structure is going to to protect you from liability. I think even with only 2 people it's a bit iffy (especially if the other person is your spouse). If you are by yourself, Sole Proprietor is easier and simpler for taxes and the like. LLC is more complex and may offer NO extra liability protection.

damoncali 16y ago
That's not quite true - I'd research that a little more. As far as taxes, a single member LLC can be classified as a "disregarded entity". In that case, the taxes are treated exactly as they would be for a sole proprietorship. The additional complexity of an LLC is just the state franchise taxes (which are usually quite low or zero at first) and a couple of documents - it's not a big deal.
bradleyland 16y ago
Well, as I have learned, anyone can sue you at any time. I could file a lawsuit against you right now, and you'd have to answer it in court. I've also learned that there are no absolutes. An LLC/S-Corp/C-Corp does not offer absolute protection, but it's not worthless either. There are "tests" that pass or fail, and that determines your individual liability. In our case, the impression I have developed is that if you're acting in the course of business, and you're acting in good faith, your corporation stands a good chance of protecting you. If you set up a corporation for the purposes of protecting yourself while screwing people over, your corporation probably will not protect you. The possible number of scenarios is far to broad to express as a "protection/no protection" dichotomy.
bradleyland 16y ago
As far as simplicity goes, consider this. As a sole proprietor, you must file a Schedule C with the IRS if you intend to take any deductions. Filing a Schedule C also dramatically increases your chances of an audit. Also, when you are audited, the audit covers all of your personal finances. If my corporation is audited, the audit does not automatically extend to my personal finances. Having a corporation actually simplified my situation, even when I was a one-man consultant shop. I've always maintained separate bank accounts for my businesses, which gives me a clearer picture of my business performance by isolating my personal finances from the picture. I find the required filing to be minimal in contrast to the added clarity. I can't make the argument that it requires less paperwork, but IMO, it does make the paperwork simpler.
- joeag 16y ago
  You may also end up with schedule C income anyway if your legal entity provides you with a dividend or other payment outside your regular salary, and you are likely to want to do that anyway because non-salary distributions are not subject to social security taxes - saves you 15%.