That is true–I know a business owner who is a renter with 2 10-year old cars and his business as his main assets. (Maybe he has a 529 for his kid and a 401(k).) It doesn’t make much sense for him to pay the $800 a year to have an LLC, rather he just pays for insurance and, whether or not they hit his limit, he’s pretty-much judgment proof. THey can go after all the personal assets they want and they’ll get about $10k for their trouble–won’t even pay for the lawyer fees. Not to mention that if a plaintiff blows through $1M in insurance, I don’t think a judge would take the business owner’s life away over mere negligence. So forming an entity is not the right choice for everyone.

UNABASHED PLUG FOR PROFESSIONAL COUNSEL: that’s what lawyers and accountants are for–to help you walk down the decision tree on each criteria on whether to form an entity and which is right for your situation.