Protecting Your Business and Investments
It is well recognized that limited liability for shareholders, officers and directors is the number one reason to incorporate. Indeed, the origin of the modern day corporation in England five hundred years ago was due to limited liability concerns. Why invest in a manufacturing plant, why send a sailing ship to trade around the world, if by doing so you increase your exposure? As an investor you’ve already put your money at risk once by venturing into the deal. You’ve done your part to advance the local economy and, hopefully, your prospects as well. By doing so, why should then all your other assets be at risk if the plant burns down or the ship sinks at sea?
Gradually, governments came to understand that in order to promote economic development, to create jobs and, yes, to collect more taxes, they needed to protect investors. And so the modern day corporation came into its own: an entity that encouraged investment for a larger good by limiting the liability of investors to the amounts contributed.
The corporation was followed by the limited partnership and the limited liability company. Now, all three good entities offer asset protection, shielding owners from personal attacks against their business. Indeed, the good entity is one of the key developments in the history of business. With a good entity, entrepreneurs can pursue opportunities without worry of losing absolutely everything. A key development, you’d have to agree.
Given this evolution to protected entities, why would you use the old fashioned, unprotected variety? If your advisor continues to recommend sole proprietorships and general partnerships perhaps you need a new advisor.