FAQ on Corporations


FAQ: Should you use an on-line incorporation service to create your firm?


Do you buy your suits off the rack and hope it fits perfectly? Or do you have

one tailored to fit properly? Almost no one can buy a suit off the rack without

adjusting the pants, the waist or the shoulders. It’s the same with legal services. If

you are happy with a cookie cutter approach to problems then by all means use an

on-line service. These shops are cheaper than what an attorney will charge. But

they do not offer the perspective that a business needs as it grows. No matter what,

their will be gaps in the incorporation service’s product. Things that should have

been tailored to the special circumstances of your company or that can be done

easily now or expensively later. For example, when you start your firm you don’t

have to worry about votes and filing amendments to the corporation papers with the

various state agencies and the IRS and reporting the changes to the various parties

who have an interest in any changes in the corporate structure (creditors, lenders, tax

authorities). Even a customized set or corporate documents now will not mean that

they won’t have to be altered in the future. But it will be your material and will be

easier to alter.


What protection does incorporation provide and what are the limits of

that protection?

Historically, people who ran businesses as sole proprietors or partners were

personally liable for all debts of the business. A corporation will provide limited

liability for the owners of the business; the most they have at risk is what they have

invested. However, it will not provide protection for you for acts that you,

personally, take for the business.

In addition to the question of piercing the corporate veil, if you sign a

contract- a lease, a mortgage, a credit card application for the corporation, you may

be expected to personally guarantee the contract; if so, you will still be personally

liable for the debt.

Second; and this is the real problem, most small businesses are run by the

owners. If the business does something that causes harm, then chances are

you will be sued, in addition to the business entity, not on the basis of your

Kaufman Law Group, PLLC

8000 Towers Crescent Drive

Suite 1350

Vienna, VA 22182


703.764-0014 (fax)

ownership of the business, but on the basis of your running the business. If you are

driving the business vehicle, and get into an accident, they can sue you personally

because you were the driver. If one of your employees gets into an accident while

working for the business, they may be able to sue you, individually, for negligent

hiring/retention/supervision/entrustment. If someone slips and falls on the ice

outside your business, to the extent that you were responsible for making the

decision to remove the ice, as manager, you can be sued personally. A tenant gets

hurt on your rental property, they may very sue you as property manager. What I’m

getting at is, if you are involved in running the business, chances are you are going

to be liable for the debts of the business, notwithstanding that you have a

corporation or LLC or LLP.

So what should you do? The best thing to do is to get insurance, and a lot of it.

Kaufman Law Group, PLLC

8000 Towers Crescent Drive

Suite 1350

Vienna, VA 22182


703.764-0014 (fax)