Blog | Entrepreneurship

Two Bad Choices in Organizing Your Business (1)

the online game that increases your financial iq - play now

You have several choices when you organize a business. Two of them are bad choices. They do not shield your personal assets from the attacks of vendors and customers. One bad choice is a sole proprietorship. Because it is not chartered with the state, and thus easy to set up, you do not have a separate legal entity offering protection. Instead, you are the business, and if the business is sued so are you.

An even worse way to do business is as a general partnership. If you fail to incorporate, then when you and at least one other person come together to do business, you are a general partnership. This means you are personally responsible for whatever happens in the business. A general partnership can come together innocently enough. When you and your friend shake hands to start a business and share profits you are now general partners through a process known as innocent formation. The consequences, however, are by no means innocent. You are now personally responsible for whatever may happen. If your partner makes a business mistake, you are personally responsible for it.

With the risks of doing business and the creative theories of liability increasing every year it is, to be blunt, unwise to do business as a general partnership. An attorney should strongly disagree with any suggestion of operating a general partnership. Furthermore, the cost of setting up a corporation is less than drafting a general partnership agreement. There is really no good reason to operate a business as a general partnership. That is, of course, you enjoy placing you and your assets behind a big, red bulls-eye for future creditors to pick off.

Key Points:            

  • As a partner in a general partnership you are personally responsible for your partner’s acts - even if you did nothing wrong.
  • Being responsible in a sole proprietorship or general partnership means all your assets – your house, bank accounts and personal belongings, are exposed to creditors.
  • Whereas a general partnership or sole proprietorship offers no liability protection, a corporation, LLC or LP offers true limited liability. Stick with what is true.

protect yourself and your money with corporate direct

Original publish date: June 12, 2012

Recent Posts

Unlocking Wealth Secrets
Personal Finance

Unlocking Wealth Secrets: Strategies for Financial Mastery

"Actions speak louder than words." Discover why it's important to pay attention to what investors like Warren Buffett do, not what they say.

Read the full post
investing in green energy
Commodities, Personal Finance

Investing in Green Energy: Here’s How to Profit

The world has been slowly transitioning to clean energy sources... but it’s about to hit the accelerator. Discover how to profit from the future... now.

Read the full post
Rich Dad’s Guide: The Difference Between Sales and Marketing
Entrepreneurship

Rich Dad’s Guide: The Difference Between Sales and Marketing

If you want to see your business grow, it’s time to focus on marketing as part of your sales funnel.

Read the full post