Small to medium sized businesses often produce more liability than their owners realize.

    Often the risk comes from areas that the business owner does not immediately focus on.

    For example, many loggers may worry about and plan for the risk of a suit if they drop a tree on someone or something they shouldn’t.

    While it is good, from the human perspective, to focus on the harm one might cause by killing someone, this is far from the only liability risk that a small logger faces.  Indeed, it is often far from the most expensive possible misfortune that could be attributed to a small logging company.

    As an example, if a wild fire is attributed to the activities of the logger, the monetary damages could be far greater than the expected damages associated with killing or injuring a single individual.

    Potentially, even the number of lives lost could be higher, if there is a firefighting accident.

    All too often small business owners get bad advice, or shy away from good advice.

    There are many reasons for this.  Incorporating is moderately expensive.  Incorporating adds an extra layer of bureaucracy.  Incorporating, in the minds of some people, just gets in the way.

    Perhaps for these reasons, many people are reluctant to take the steps necessary to incorporate.  Others do incorporate, but then do not properly maintain the bureaucratic entity that is the corporation by filing annual reports with the Secretary of State, holding annual meetings, and the like.

    Sometimes small business owners seem glad to seize on the advice that they are given, that “a good” lawyer will be able to punch right through the protections of a corporation, and seize the assets of the individual if there is ever an accident.  Sometimes this advice not to incorporate is even attributed to a lawyer (who often remains unnamed, or who is sometimes a lawyer that the speaker met in a bar).

    It may be true in some instances that a good lawyer can reach right through the protections of a corporation to attach the assets of an individual.  If an individual owns a small logging company, and personally fells a tree that drops on another person, the individual (as the tree feller, not as the president or owner of the corporation) probably will be liable.

    However, if the tree is felled by some other employee, or if there is a wildfire, and individual fault is impossible to trace (even though the fire is traced back to the logging operation in general) a good and properly maintained corporate structure, backed by insurance in a reasonable amount, can provide a very significant layer of protection for the individual who owns or controls the company.  This is often true even when the amount of harm caused is several orders of magnitude greater than the amount of insurance that is carried.

    Additional protections can sometimes also be put in place.  To build on the example of this fictional logging company, if the logging company does not own its equipment, but instead leases it from some other company (perhaps controlled by the same owner), then even the assets that the company uses in its operations may be safe from suit in many instances.

    Of course, this is not a guarantee this will always work.  The protections of a corporation work only when the corporation is properly structured and maintained, and when (among other things) the corporation has adequate capital and/or adequate insurance.

    It is for reasons such as this that the small business owner should work with a good lawyer to select between an LLC, a Chapter S corporation, or a Chapter C corporation.  The small business owner should also work with a good lawyer to make sure that they are not trying to protect too much.  It is when one oversteps the boundaries of good sense (for example, by not adequately capitalizing, or by not having inadequate insurance or other protections) that the corporate veil can be more easily pierced.