Incorporation is not simple.

June --

I am writing you from Texas. I'm helping my partner start a products business.

This is his second business, the first business is three years old. We are trying to determine whether we should incorporate to protect his assets, mainly in case we get sued (not for amounts owed, as we will pay these, but for injury). The product is not really dangerous at all, but people can come up with some strange things. Is the extra trouble of incorporation worth it?

Since I will be doing this one myself, I'd like it to be simple, but I also don't want to be at fault if someone does sue us and we lose the house.

Thanks! Jennie


To Jennie and all the indies who check out my blog, I assume you know that I can't answer all the questions sent to me. I pick and choose as time allows. I chose this one from Jennie because it is typical of so many questions about incorporating that are sent to me.

In deconstructing Jennie's question I hope to help you structure your questions in a way that will more beneficial to your indie venture.

If I were concerned whether the water pipes to the back bathroom were in good condition you'd say I had a plumbing question and that I should ask a professional (certainly not my writer husband) about the situation. You'd tell me to ask a plumber not an electrician .

Jennie has a liability situation. She did ask a pro (better than asking the new acquaintance from the spa who happens to be incorporated). But, Jennie has questions about liability. Liability is not a tax issue. Liability protection is an insurance and/or a legal issue. She needs to speak to her business insurance agent or a product liability attorney. Discuss her situation. For instance, what's the product? Is it massage oil that could give someone a rash? A power saw that could cut off an arm? A software program that could wipe out a computer?

And Jennie says: "I will be doing this one myself, I'd like it to be simple." Good golly, Jennie. There is nothing simple about being incorporated. Even though the online ads offer to form your corporation in less than 10 minutes that's just the beginning. Fulfilling all the requirements of a corporation are complicated. A corporation’s liability protection often depends on whether those requirements are met to the letter. Indies who consider incorporating should be crystal clear on why they are incorporating and whether the needs they have will be filled by incorporation. Indies should also be thoroughly informed of the hoops they have to jump through to maintain that corporate “veil” of protection.

For more info check out your local Small Business Development Agency, http://www.sbda.com/ , often located at the community college, as well as your business insurance agent and an attorney.

-- June