Many people get their business start as a sole proprietor because they believe that it is better to start a business without incorporating then delay starting one. The idea being that it is “too expensive” to incorporate when you are on a shoe string budget. It is true that starting a business on a shoestring budget was certainly how some of the world’s largest corporations got their start…in a different, less regulated time of fewer legal pitfalls and debt traps.
Today’s world is one where a group of girls were fined $3500 for operating without a license for their lemonade stand. So understand that you can postpone incorporation or act as a sole proprietor, but you also get everything else that comes with it.
One of the things that you are missing without incorporation is protection from liability. If you have a corporation and that business is sued, your personal assets are not subject to any legal debts the business occurred. If your business fails and it owes outstanding debts, an LLC protects you and your family’s personal assets from litigation.
It is limited by –of course—any criminal endeavors you might commit, but in general it will protect you personally from any number of financial and legal headaches.
Incorporation is also not that expensive. In most states it is a few hundred dollars to incorporate. Even better, services like LegalZoom allow you to do the whole process sitting at your desk. It is better to save up $300 and incorporate than to deal with the aftermath of litigation or debt burdens should something unforeseen occur.