Solve Your Legal Matter

How altering your business structure could impact litigation

On Behalf of | Mar 29, 2023 | Business Litigation |

If you have been operating a business as a sole proprietorship for some time, chances are that your company has experienced success and growth over time. Your efforts may even be so fruitful that you’re wondering whether it makes sense to continue operating as a sole proprietorship, as there may be benefits to altering your business structure. 

Most operators of independent business ventures are drawn to the sole proprietorship model for two primary reasons: the ease with which these companies can be launched and the fact that this structure offers sole owners maximum flexibility in the ways in which they run their enterprises. 

Yet, the sole proprietorship features one potentially consequential drawback: The absence of liability protection in the event of a lawsuit. 

The importance of liability protection

As the owner of a sole proprietorship, your personal assets – including funds in your personal bank account and even your home – could potentially be seized in the event that your company is sued and you lose your case. By shifting your business structure to a limited liability company (LLC), you could maintain sole ownership over your enterprise – and you could even keep managing your company’s taxes on your personal tax return – but you will benefit from personal liability protection that you aren’t afforded now. 

By better understanding how an altered business structure could affect your rights in the event of litigation, you’ll be empowered to make informed decisions about your options. Business structure opportunities are consequential in nature. Therefore, it is generally a good idea to seek legal guidance before committing to either a plan of action or a plan of inaction in regard to this issue.