Major Drawbacks Of Sole Proprietorship - It Could Cost You More Than Business

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A sole proprietor has unlimited liability and responsibility for the debts and obligation of the business. The owner's personal assets, including his or her home are at risk to the creditors of the business. Sole proprietors also have more difficulty obtaining institutional financing for growth. A sole proprietor is also not allowed a broad deductibility of medical insurance premiums as is an LLC or Incorporation.

Why then would a person operate as a sole proprietorship as opposed to Incorporating or creating an LLC? The answer is that a lot of people view the creation of an LLC or a Corporation for their business similar to the way they view creating a Will. They recognize the need to get it done, but they simply put is off. Perhaps they simply do not want to take the time to see an attorney and get it done. Perhaps they believe it will be so expensive that they will not be able to afford it right now. Well, whatever the reasons, they are not good enough.

Although it is best and in some states required, that the entity or Will be created by an attorney, that does not necessarily mean that it will be expensive or time consuming. There have been a growing number of non-lawyer companies providing the legal service of Incorporation and LLC creation. Because the non-lawyer companies operate over the internet it is hard if not impossible for the legal service regulators for each state, the State Bars, to stop the non-lawyers from providing the unauthorized legal services. In Georgia, for example, the Standing Committee on the Unlicensed Practice of Law has said:

"A corporation is a legal person, having 'the same powers as an individual to do all things necessary or convenient to carry out its business and affairs....' O.C.G.A. §14-2-302. When properly formed and maintained, its existence is legally independent from those who created and own it. This independent status relative to the law is the raison d'être of the corporation, as the entity can insulate its shareholders, directors and officers from certain forms of liability. See, e.g., O.C.G.A. §§14-2-622(b), 14-2-830(d), and 14-2-842(d). The corporation owes its existence entirely to the operation of the law, as '[a] corporation, considered in itself... is, in fact, a myth, a fiction, and has no existence but in the imagination of the law.' Loudon v. Coleman, 59 Ga. 653, 655 (1877).

Since a corporation's existence is utterly tied to and dependent upon the law, the documents that bring it into being and define its parameters are documents that serve to secure legal rights.

The practice of law in Georgia is defined, in part, as '[t]he preparation of legal instruments of all kinds whereby a legal right is secured' and '[a]ny action taken for others in any matter connected with the law.' O.C.G.A. §§15-19-50(3) and 15-19-50(6). See also Huber v. State, 234 Ga. 357, 358 (1975)."

Knowing that the forming of an LLC or a Corporation is an important legally relevant service, at least one law firm has responded to the proliferation of "document processing" companies practicing law without a license. LegalCreation.com is the web site for a law firm and growing network of attorneys seeking to take back the legal service of Incorporation and LLC creation with the goal of providing quality legal advice instead of lengthy disclaimers. The creation of the LLCs and the Incorporations are completed by a licensed and insured law firm at extremely affordable prices because the firm has created efficiencies in the production and delivery of the legal services.

Since a sole proprietor can quickly and inexpensively have a valid and legal LLC created for the operation of his or her business there is no longer any reason to delay. If you have any more questions on business formations you may visit LegalCreation.com

 

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