Whether it is your main source of income or just a serious hobby, an error in judgment or a negligent act by you, an employee or an agent can result in a lawsuit that can take down your “business”. Unfortunately, if you have not separated your business enterprise from your personal assets by forming a corporation or a limited liability company (L.L.C.) , a court judgment could very likely be satisfied by placing a lien on your personal assets.
A corporation or L.L.C. needs to be carefully set up, not only to create a “firewall” that limits your losses (liability) to your business assets (and protecting your personal assets), but to establish the ground rules (shareholders’ agreement or membership agreement) for you and your business partners. Though few people give it much thought at the outset, all business enterprises are destined to end: by death, by retirement, by agreement of the ‘partners’, or unfortunately, by a dispute between the ‘partners’. Therefore, your exit strategy is as important as your decision to form the business.