Economic Downturn!

Tough Decisions During Tough Times

When money gets tight, people have to make tough decisions. Where can I cut back? Is this a "need" or a "want" that I can do without? This can be doubly true for the business owner. Is this the time to dissolve my old LLC or Corporation that I have been holding on to in the hopes of one day getting it going again? I have been running my business as a sole proprietor for a while now and I know that I should form a business entity, but can I afford it?

During these economic times, it may be tempting to dissolve existing entities that are not currently profitable or operational. It can be appealing to avoid the annual filing fees and preparing the annual tax returns. It might be tempting to hold off on organizing your business as a corporation or limited-liability company. Although there may be cost advantages to shutting down a company or delaying organizing to protect your personal assets, there could also be significant overriding risks to these decisions.

Proceed with Caution - This may NOT be the time to dissolve your LLC or Corporation!

When considering the dissolution of your company, you will want to consider that certain states may hold a business owner personally liable for debts and other liabilities of a dissolved business entity. For instance, under California law, a shareholder or LLC member can be held personally responsible for entity liabilities for up to four years after dissolution, depending on the applicable statute of limitations period. Even if your business entity was not formed in California, if you are qualified to do business in the state, you could still be at risk. Courts are supposed to apply the law of the State of formation, however this doesn't always happen. That means that even if you formed your California Company in another state, you could still be held personally liable.

In times like these, people are looking to increase their cash flow and they may be looking for opportunities to collect on old debts or disputes that they may have been willing to ignore when times were good. Some people may even create a dispute where none existed in order to give them an opportunity to generate some income. An exposed target with personal liability is much more tempting than someone protected by a corporate shield.

What does this mean? Well, if you have dissolved your entity, you could have personal liability to these desperate or unscrupulous individuals. They may see that you're exposed and seek to exploit that exposure even if they have no valid claim. What should you do? This is up to you, but if you keep your entity in place until the Statute of Limitations periods have run, not only do you minimize the risk to your personal assets, but you may also discourage the unscrupulous from filing suit against you in the first place. Asset protection is more important than ever today, given our economic environment. If you dissolve your entities now, you risk exposing your personal assets. You may want to carefully consider this before you dissolve your company.

Delays May be More Costly - Protect Your Assets!

Those business owners who are doing business as sole proprietors or in partnerships, without the protection of a corporation or LLC, are personally liable for any debts or liabilities the company, the owner or the partners incur. You work hard to make a living. The last thing you want is to lose your home, your car or your child's college fund due to a business liability. A corporation or LLC creates a legal separation between you and your business. By forming a business entity, you can help protect your precious assets.

Given the current economic environment, the real question is: Can you afford NOT to incorporate or organize as an LLC and use the shield provided by law to protect your personal assets? The obvious answer is: Of course not!

To determine which entity is the right one for you, take a look at the LLC vs. C-Corp vs. S-Corp section. With CenterPoint Corporate Services' comprehensive, turnkey solution, you can form your new entity and get the protection you deserve.

Now, more than ever, it is important to make sure that your hard earned assets are protected. In today's economic environment, the old adage "An ounce of prevention is worth a pound of cure", could be more true than ever.