Common Mistakes Made by Small Business Owners – Part 1 – Not Incorporating

One of the most common mistakes made by small business owners is not forming a separate legal entity at all, and operating as a sole proprietor. A sole proprietor  is a person who is running a business under their own name or a fictitious name, but without incorporating or forming a separate legal entity to operate the business. Many sole proprietors fail to understand that there is no legal distinction between them and the business – and that they have unlimited personal liability for all business debts and losses. This is especially concerning for businesses in which the owner can be exposed to a high level of liability.

Some sole proprietors legally file for and obtain a fictitious name to operate under, and then open bank accounts under their fictitious name. Others may operate under a fictitious name without legally filing with the state of Florida to register the name.  In either situation, this may create a false sense of protection because business debts are being paid from the business account; however, the business owner may not understand their potential personal responsibility for the business’ debts and liabilities, and the fact that they may have to be paid from the personal accounts and assets of the owner.

To learn more about the incorporation process, and the different types of legal entities and options available, contact a business law attorney.

Posted in Business Law
Tags: , , , ,