Yes, it is too late to gain any liability protection as a corporation if you have already been sued as an individual. Incorporating now would not make any difference for the currently pending lawsuit.
If the person who is responsible is truly a contractor, then you may have the right to cross-complain for indemnity and contribution from the contractor. However, if the person responsible was your employee, then under the doctrine of respondeat superior, you are liable for your employee's actions.
If you have insurance, you should immediately tender the lawsuit to the insurance carrier and demand that the carrier defend and indemnify you. If you do not have insurance, or if the insurance company denies coverage, you must immediately retain an attorney to defend you.
Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This Avvo.com posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.
"If I was sued as a sole proprietorship , is it too late to incorporate to gain liability protection?" -- For this incident, yes.
"Does it make a difference that he is a contractor vs employee?" -- If he was an employee you should have had workers' compensation insurance and your liability would have been limited in most cases. Depending on the nature of the work, your exact relationship, and the cause of the injury a truly independent contractor may be 100% responsible for his injuries.
'I have insurance but Is it too late to gain liability protection since the accident happened last year?' -- For this accident, yes.
My suggestion? Consult an attorney regarding the specific facts of your situation. Incorporation may, or may not, be the right choice for you. That money could be better spent paying an attorney to represent you in the underlying matter.
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A corporation is an artificial "person". According to your statement, no corporation existed at the time of the alleged wrong. Therefore, that "person" could not have committed a wrong and is not a "party in interest", anymore than an unborn human would be. It is unclear to me who the injured person was. It could have been an invitee, a trespasser, an employee, involved an attractive nuisance etc. There are too many unknowns to answer your question further.