The Protections of Business Incorporation-Do You Really Need It?

by: Mark Thomas

Business Incorporation has grown in America by leaps and bounds thanks to the number of frivolous lawsuits filed every year. Realizing this, I started to wonder about a couple of things. First, just how many lawsuits are there and is this really something I should worry about? Second, will starting a business incorporation or LLC actually help to keep me protected?

Let’s start with the first question. Should I really be worried about lawsuits? After doing quite a bit of research into this topic, I cannot say clearly enough, Yes! The American legal system is a disaster in this area. So much so, it is often referred to as ‘Jackpot Justice’ because so many lawsuits are filed by individuals against businesses just hoping to ‘win the jackpot’. The following facts alone can make a business incorporation sound like a good idea:

• It has been estimated that frivolous lawsuits alone cost the United States $200 Billion per year.
• Trial lawyers in the U.S. earn an estimated $40 Billion dollars per year (That’s their cut!)
• Most companies surveyed privately admit that they will pay out cash to prevent a lawsuit. They call it legalized extortion.
• Most lawsuits come from current or previous employees.
• Three (3) new lawsuits are filed in the United States every minute!
• Of all lawsuits filed in the world, more than 9 out of 10 are filed in the United States.
• If you own a business, you have a 1 in 4 chance of being named in a lawsuit this year!!
• Unlike in the rest of the world, the loser in a lawsuit is rarely made to pay any legal fees of the winning party, which means you can sue anyone, anytime with nothing to lose!

I have heard things like this many times, but taking the time to research and write it down actually scared me. It made me realize that there are at least two things in business that I don’t want to be…one is a sole proprietor and the other is a general partnership. Neither one offers any form of legal protections for the owners and after writing this I feel like I need all of the protection I can get.

Business incorporation does offer at least part of the answer. By completing a business incorporation (or by forming an LLC) you can shield your personal assets from the next person who is careless enough to spill coffee in his lap and then blame your coffee shop. Remember the McDonalds lawsuit, anyone? How about the pants lost at the dry cleaners that resulted in a $54 Million lawsuit? Remember how companies think lawsuits are actually extortion? The dry cleaners in this case offered $3000 to make the case go away. Then they offered $4600 and finally $12000! Guess what? That wasn’t enough to compensate the plaintiff for his pants, so they went to court. This illustrates how silly lawsuits can be and why you need to worry about them. No business in immune. What if you had not gone through the formal process of business incorporation? Everything you have in this world is up for grabs. Your car, home, savings account, and kids college fund. What if you had completed a business incorporation? Your car, home, savings account, and kid’s college fund should be safe. Why? Because they are legally suing your business incorporation, not you. As a result, they are going after the assets of the business rather than your personal assets.

If you own or are starting a business, consider completing a business incorporation or forming an LLC. Then get an insurance policy on top of that…you can never be too safe these days!

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