Are you protected?
By Kimberly A. Raber
So, you’re ready to take the leap and form a bona fide company. Congratulations! My law practice is a woman-owned small business just like yours. I primarily practice in the area of business law and am passionate about helping small businesses owners protect themselves and the businesses they’ve built.
It is a common practice among small business owners in South Carolina to form their own limited liability company (LLC) online from home in the comfort of their favorite pajamas. The S.C. Secretary of State website makes that easy to do without the help of an attorney. However, while this may initially sound like a great idea, you could be placing yourself and your business at risk. Let’s look closely at the process of forming your own LLC.
You will be asked right away to complete articles of organization, which the website makes sound easy enough. But are you aware of the role of a registered agent? What a term company is? Or if your company should be managed by members or managers? The majority of people answer these questions without actually understanding them. And they are important questions!
Next, for tax purposes, you are asked to inform the IRS how you want your company to be treated. If you choose to skip this portion or if you make an uninformed choice, you could end up paying more self-employment taxes than you should. Who wants to pay more taxes?
Taking the next important steps
Next, are you acting like a company? Do you have a signed operating agreement that suits your company? How is your company’s name listed on your letterhead, invoices, emails, business cards, social media, advertising and marketing materials? Who has the authority to sign legal documents on behalf of the company? Has the company voted on and approved major transactions, such as sales and purchases of property or loans? You are probably answering “no” to these questions — and wondering why it matters. Trust me, you are not alone. And that’s not good.
If your company is not acting like a company, then the courts are not going to give it the protection of a company. What that means is that your company’s contracts could be held invalid and not enforceable. You, as the owner, could be held personally responsible for the debts and liabilities of the company. You could lose your house, cars, savings — EVERYTHING you worked so hard to accumulate.
As you are now quickly changing out of your pajamas, you are probably asking yourself, “What do I do now?” Every business owner will benefit from being part of a team. You need to build your team by seeking the services of an attorney and an accountant. These professionals are educated and trained in helping small businesses and will look out for your best interest. You and your team can ensure that you are paying the correct amount of taxes, that your personal assets are protected from the debts and liabilities of your company, and that your contracts are valid and enforceable.
Build a team and let it work for you so you can concentrate on and grow your business.