In the construction world, many businesses are family owned and almost indistinguishable—from a practical standpoint—from the owners. So it’s particularly important for contractors to incorporate. In addition to possible tax benefits, incorporation protects personal assets (such as your house) from judgment and collection actions.

Incorporation works—as at least a partial shield—because the company and the owners are separate entities from a legal perspective, and a contract with one entity can’t be enforced against another. This same logic applies in the context of corporate versus individual actions (that is, the actions of one person cannot be legally attributed to...

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