Legal Issues in Parking Area Sweeping

The Value of Incorporating Your Power Sweeping Business

More work, but worth it

New businesses often struggle with the decision about whether to incorporate. Many start-up businesses see incorporation as a meaningless act that involves a needless waste of time and money. Although incorporation requires additional paperwork and formalities, the protection provided by a corporation usually greatly outweighs the burdens that accompany this business form.

The primary benefit of incorporating a business is to limit the liability of the owners. If proper state law procedures are followed, the shareholders of a corporation are not liable for the debts and liabilities incurred by the corporation. For example, if a customer is injured by a product manufactured by the corporation, only the corporation's assets are subject to the claims of the injured party.

The individual shareholders are at risk only to the extent of the money they have put into the corporation. On the other hand, if the business is not incorporated, an individual owner would be liable for any damages incurred by the business. His or her personal assets would be available to satisfy any claims.

If two or more people are conducting a business in the form of a partnership, the situation could be even worse. One partner could take some action or commit the partnership in a manner that results in extensive liability to the partnership. Ultimately, the other partners typically would be jointly and severally liable for partnership liabilities.

There are, of course, some situations in which even shareholders would be personally liable for corporate obligations. For example, if a shareholder independently guarantees a corporate debt, the shareholder would remain liable for repayment of that debt. Also, some liabilities, such as federal tax withholding, could be the responsibility and liability of individual officers and directors of a corporation. However, by and large, the corporate shield should protect the shareholder from corporate liabilities.

To obtain this protection, certain formalities must be maintained. For example, each time an officer signs for the corporation, he or she must sign in his official capacity as a corporate officer and not individually. Additionally, at least one annual meeting of the shareholders and directors should be held each year. Minutes of these meetings should be maintained in the corporate records to evidence the formal actions of the corporation. In no event should individual money ever become co-mingled with corporate funds. A corporate account should be maintained separate from the individual accounts of the shareholders.

Corporate minutes also are important from a tax standpoint. Very often, the first documents that an IRS agent will ask for during an audit are the corporate minutes. An accurate, and appropriately worded, set of corporate minutes could head off costly arguments with the federal government.

Although maintaining corporate formalities may seem to be a burdensome and needless chore, the protection that a corporation provides the owners of a business can prove very valuable, particularly given the increasing number of lawsuits being filed each year. Even though incorporation may not be the right answer for all businesses, each company should consider carefully the benefits and disadvantages to the corporate form of doing business.

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