It's Time to Protect Yourself - DBA, Sole Proprietorship, LLC, Corporation ... What Do I Choose? | Brentwood, Tennessee Business Attorney

I was recently speaking with several business owners at a networking event in the Nashville area. As is the way with many of these events, you meet a lot of people and lot of business owners. At these events, the common question is "so, what do you do." After meeting several of the business owners, they each mentioned "I'll keep you in mind when I'm ready to incorporate my business."

I was shocked and floored! I couldn't understand how someone could be in business for so long and not "be ready to incorporate their business!" The purpose of this article is to explain the difference between a wide variety of business entities out there for each business owner to consider.

First, what is DBA and Sole Proprietorship? This is nothing more than opening up your own business in your own name, or operating under a trade name that you may (or may not) have filed with the Secretary of State's office. Operating as a DBA and Sole Proprietorship is very dangerous, and I almost always recommend against this type of structure. When you operate a business as a Sole Proprietorship, or even with a registered DBA, you can be sued in your own name and personal capacity. What this means is that all of your personal assets are subject to loss from the lawsuit. This means your home, your personal bank accounts, your IRAs, your retirement accounts, your investment accounts, and all of your other personal property is potentially at risk for loss!

You may be saying, isn't that why I have insurance for my business? Isn't the purpose of the business policy to protect myself in the event of a lawsuit? Well, having insurance helps mitigate the risk, but it doesn't cure it! I have read far too often cases where there are large jury awards that are over and above the insurance coverage. In addition, insurance companies are notorious for not wanting to pay the policy limits. Your asset protection strategy with your business should not be insurance! It should also include the correct structure and business entity selection so that your personal assets are never at risk in a lawsuit regarding your business!

When you start a business, the very first thing you should do is hire a business attorney and incorporate in the form of an LLC or a corporation. Depending upon the type of business you have, it may make more sense to set up as an LLC or a corporation. A knowledgeable business and corporate attorney will be able to properly advise you and represent you in this process including filing the correct corporate structure, filing the correct documentation with the Secretary of State's office, establishing an operating agreement, creating necessary contracts, and, if you have employees, establishing an employee handbook. Not to mention, make sure that your corporate minutes are updated annually. Failure to do this is the number one way that owners can be held personally liable, even if they have an LLC or corporation!

Hiring a knowledgeable business attorney is a small investment to make to ensure that you and your family are always protected! 

When you are served with a lawsuit, the last thing you want to do is spend your time worrying and looking for a lawyer. You will already want to have a lawyer that you know, like, and trust to call when that lawsuit comes in the mail!


Daniel A. Perry
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Focused on helping seniors, individuals with disabilities and small business owners make informed decisions.
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