Receiving a lawsuit from a customer, employee or neighbor is painful and embarrassing even when found innocent.

Statistics have shown that one out of four people are sued each year. In addition a person may experience on average five lawsuits in their lifetime. And one of them is considered crippling. 94% of lawsuits occur in the United States.

As a part-time or full time small business owner the best tool you can use to protect your personal assets (home, car, boat, vacation home, etc.) is to incorporate. If your business is sued and the lawyer of the plaintiff determines you have been operating as a sole proprietor, all of your assets including personal belongings can be taken away. However, if your business is registered as a legal entity such as a Corporation or Limited Liability Company (LLC) your personal assets will be kept private from the lawsuit.

Vice-versa, lets say you get into a small accident in your personal car. You are found at fault. The other person decides to sue you for other damages. They later discover you are the owner of XYZ, Company that generates $500,000 a year in profit. Can your business be taken away because of a small dent in a bumper? The answer depends on how your business is incorporated. If it is a sole-proprietorship the answer is "YES". If it is registered as a corporation or limited liability company the answer is "NO".

Why is this the case?

The law views a business as a separate person. Therefore business assets become separate from personal assets.

Do you see the advantage of incorporating? Or are you still contemplating the benefit of incorporating, because it costs money. You would rather use the money towards advertising or building a product.

Please don’t be worried about dealing with lawyers and paying legal fees. You do not have to use a lawyer to incorporate. You can do it yourself online through your state government.