An inexpensive incorporation can protect an entrepreneur

Whenever an entrepreneur starts his or her own business, there is a certain amount of risk involved. But as Entrepreneur magazine contributor Karin Price Mueller writes, working to create a corporation for that small business can protect its owner and his or her assets should anything happen.

While there are advantages to each of the many major business types, each of them offers entrepreneurs limited liability on behalf of their company, Price Mueller says. So if someone files a lawsuit against the business, the entrepreneur won’t be personally responsible for the company’s actions and their personal assets will be protected.

But that protection is difficult to enforce if a business owner mixes personal and business finances. Price Mueller says that while keeping all of the money together can seem like a good way to reduce paperwork and bank fees, it can also backfire. She says that once the business is created, the small business owner should receive a separate Federal Tax Identification Number to use on all of the company’s accounts instead of his or her social security number.

Keeping a clear separation of accounts can also help if the company is ever audited. WomenEntrepreneur.com writer Peri Pakroo says that mixing transactions makes it nearly impossible to decipher which expenses are business-related and which ones are not.