When is a business too small to incorporate?

No business is too small to incorporate because no business is safe from lawsuits. Obviously, the larger enterprise has more need for corporate protection if only because it is a larger lawsuit target, but still no business, no matter how small or seemingly safe, is immune from legal and financial disasters. Here is why we say no business is safe. A wealthy widow from our neighborhood, and a client, enjoyed spending her weekends selling imported dolls at a local flea market. Not long ago she sold a defective doll. A customer's three-year-old daughter punctured her eye after dislocating the doll's arm, exposing a large nail. This lady is now defending herself and her insignificant wealth against a $5 million products liability claim.

Had she incorporated her tiny kiosk enterprise, her corporation, and not herself, would have the liability; her personal assets would not be in jeopardy. Why didn't she incorporate? Her accountant discouraged her. "You don't need a corporation. Why spend money to incorporate to run a nickel-and-dime weekend business?" Bad advice! Had she incorporated, she would not be worried sick about losing everything she owns. Incorporating is your best insurance!