Welcome to our newsletter! Starting a business is fun. I’ve always loved the creative part of it—bringing something totally new to the market, creating a brand or business that didn’t exist before. Creating a brand and building a new business from scratch gets me fired up.
But while building a business can be exciting, there are also critical steps that need to be taken to protect yourself right from the start.
One of the most essential parts of creating a business is setting up the right legal structure. Having the proper business structure isn’t very expensive, but it’s incredibly important. I see a lot of new business owners skip this step, which is a common oversight.
When people ask me for advice, one of the first questions I pose is, “How is your business structured?” Often, they don’t even have a formal structure in place. If that’s the case, and they’re simply claiming income on their taxes without establishing a legal entity, they’re classified as sole proprietors. Operating as a sole proprietor comes with specific challenges and risks. You’re not afforded the protections that come with other business structures, such as LLCs or corporations. As a sole proprietor, you are 100% liable for any debts or legal issues that arise from your business activities, meaning your personal assets, like your home and savings, could be at risk if something goes wrong.
Understanding these implications is crucial for anyone looking to grow and protect their business.
In an industry like ours things can get dangerous quickly. Injuries can happen. You could break a leg, one of your guys could fall down a customer’s stairs. It’s a risky business, and if you’re not structured properly, it’s going to be a serious problem if something inevitably goes wrong. Setting up the right structure is a basic but critical step that can save you a lot of headaches down the line.
For new businesses, I think the best setup is the LLC, which stands for Limited Liability Company. An LLC provides a solid layer of protection for business owners just getting started. It shields your personal assets, meaning that if something goes wrong with the business, your personal property—like your house, car, and other assets—is generally protected.
But don’t be fooled. If you don’t follow the rules, an LLC can only go so far in protecting you. If you’re careless or negligent, attorneys can “pierce the corporate veil,” which means they can hold you personally liable in court. They’ll argue that your actions were grossly negligent and can come after your personal assets. Or in more simplistic terms, you're fucked.
After choosing the right structure, there are other steps you can take, depending on your situation. It’s typically a good idea to consult with a CPA. If you don’t have a CPA, I’d advise paying for a consultation. These decisions—like choosing the right business structure—will have a long-term impact on your business and your personal life.
For example, I started my business as an LLC, and it still is an LLC, but as we grew, we restructured to an S Corporation to take advantage of additional tax benefits. With an S Corp, we’re able to protect more income from taxes, which wasn’t something we could do when we first started. Knowing when it’s time to transition to a different structure and understanding which setup is best for your business is crucial. This is why consulting with a professional like a CPA is so important; they’ll have insights that will help you make the best decision.
My closing thoughts, I can’t stand the government’s grip on business any more than the next guy. But I’m not about to ignore the laws—even the ones that don’t make much sense. Cutting corners to dodge a tax or skip a rule might feel like a shortcut now, but it’s a quick road to big trouble down the line.
So, make sure you’re covered—get the insurance, follow the regulations, and do things by the book. The last thing you want is to risk everything you’ve built just because you tried to save a few bucks.✌️
Justin Hubbard
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