Top Five Mistakes in Forming Your Corporation

By Brad Sugars of Entrepreneur.com



In my September column, we looked at mistakes to avoid when forming a partnership. Many entrepreneurs, however, aren't comfortable in remaining a sole entity and require a level of legal protection not afforded by a sole proprietorship.

That leaves a corporation or LLC as the next most viable option for a start-up.

While some owners think incorporation is only for "big" companies, there are a number of reasons even "small" entrepreneurs should think about incorporating, mainly from the standpoint of personal liability protection.

In the U.S., each state governs the corporation structure and its own legal requirements for forming one. Generally, a corporation is treated under the law as an individual person, with full legal standing, and may own property, sue and be sued, and enter into or make contracts.

While the number of sole proprietorships outnumbers corporations, most of those entities exist by default -- meaning the owners have taken the easiest and least expensive road to getting their businesses off the ground.

What those owners fail to see, however, is the downside of having all of your "business eggs in one basket," and many are just a lawsuit away from losing every asset in their name -- including their home, cars and any personal or investment savings.

While forming a corporation or LLC is less expensive and easier than ever before, here are some things to avoid to get your corporation off the ground. If done correctly, your business will continue to thrive long after you've decided to sell your ownership stake and move on to better and evermore profitable business ventures.