3 Basic Business Entity Points to Carefully Ponder

Selecting a business entity is a big deal. It's your last line of defense and if it doesn't deflect the wolves then there's a good chance you'll be starting all over somewhere.

From the, "What They Didn't Teach You in School About Running a Practice" file, here's 3 points that I think should be understood by every counselor. Doesn't matter whether you're a 1099 or a W-2.

"Sole Proprietor" Affords You ZERO Protection

Sole Proprietor is the name of the DEFAULT business entity assigned to you by the state. Just like if you don't have a will, the state has one for you and you're not gonna like it, the state has a default business entity for you if you just never get around to setting one up. That's what a sole proprietorship is and you ain't gonna like that either!

The main issue is, it affords you no protection for liability issues. That means if someone sues you (for good reason or bad), everything you own or ever will have is on the table to lose. All of it. Your house, your cars, your savings, anything of value with your name on it can be taken from you. Even if you win the case, how much will it cost you to defend yourself just because you made yourself the low-hanging fruit in some attorney's eyes?

You don't want to operate your practice as a sole proprietor, especially one as "touchy" as ours can be. See an attorney and don't be the low-hanging fruit.

"DBA" Is Not a Business Entity

DBA stands for "Doing Business As". It has everything to do with registering the name of your business with the state so no one can steal that from you, but it has zippo to do with protecting your financial assets. It's all about protecting your business' name and that's it.

Do not make the mistake of thinking that because you have protected your business name with the state that everything you own is safe. It's not.

Regardless the type of business entity that you set up, you should get a DBA to protect the business name. A sole proprietor needs a DBA, but it doesn't provide any asset protection other than the name your company uses. An LLC, or an S-Corp, or a C-Corp (and there are other business entity types) do afford you protection from liabilty, and they all need a DBA to protect the company name. That's two separate protections; entity plus DBA.

Make sense?

Your CPA Is Not An Attorney

Nor is your attorney someone from whom you should probably seek financial or accounting advice. If you need to set up a business entity then have someone who is licensed to practice law do it for you. It matters.

Use a CPA for bookkeeping, accounting, and possibly financial advice, and use an attorney for legal matters. It's that simple.

And now you know!

Plan Smart. Be Safe. Serve Others.

Kathleen Mills, LPC-S, CEAP