Should a Really Small Business Form a Corporation or LLC?

When I first started to learn about LLCs and Corporations, I kept thinking to myself, why would small businesses want to form LLCs or Incorporate? At a quick glance there doesn’t seem to be much risk for certain businesses or services that people provide. An example was given to me years ago, and I still think about that example today, when people are asking why their tiny business should be run under an LLC or be incorporated.

Imagine you’ve got your own side business going, In your spare time, you retouch photos, photos with cracks in them, many of them several decades old. Now imagine someone has paid you to retouch a stack of photos, and you lose one of their photos. Now you might think that’s not that big of a deal, you can eat the cost of the re-touching, or provide some other service for the loss. But in reality, the client could very well sue you, and say the photo was worth $10,000 dollars to them, and it may be true, it may have been a 100-year-old photo that is irreplaceable, so unless you had a written contract before hand stating what you are and are not liable for, the client has a right to take you to court, and should they win, you will personally be liable for that $10,000, even if your side business has never even made that much money, because you and your business are one when you’re not incorporated or running the business through an LLC.

Now that probably won’t happen, but it’s possible, and ever since then, I always think of the little risk that a photo retoucher has and think of how much more risk other businesses have, and if the photo retoucher can benefit from having an LLC or corporation, even if it’s just peace of mind, I think most businesses should seriously consider forming a corporation or LLC.