Sarah Nilsson JD, PhD, MAS
Sarah NilssonJD, PhD, MAS

Business Organizations

Forms of Business

(controls potential consequences of legal risks inherent in doing business)

- Sole Proprietorship: business owned by single individual who is personally responsible for debts of business and torts committed by employees

- General Partnership: same personal liability as above applies to each general partner

- Limited Partnership: also has at least one general partner

- Limited Liability Company (LLC): owners have same protection as shareholders of corporation

- Limited Liability Partnership (LLP): owners have same protection as shareholders of corporation

- Corporation: no owner (shareholder) of business took on the added risk of vicarious personal liability for torts committed by employees or debts of business

 

Forming and Operating a Corporation

Agent for service of process

Articles of Incorporation: express what has been created

Certificate of Incorporation

Alter Ego Doctrine: if, notwithstanding the fact of incorporation, you continue to operate the business as though it were a sole proprietorship or partnership, a plaintiff's attorney may later be able to "pierce the corporate veil" to reach our personal assets to satisfy liabilities or debts of the business

 

Looking like a Corporation

- Showing the corporate name: Inc., Corp., Ltd.

- Adequate capitalization: no-hard-and-fast-rule on how much money and assets needed - empty shell having no assets more likely to pierce the corporate veil

- Multiple shareholders: more than one shareholder makes it legitimate

- Duck rule: quacks, waddles, leaves a slippery trail of spoor like a duck - then a DUCK!

- How to sign for a Corporation - so it is apparent to the world you are signing on behalf of the corp. not personally - 3 elements:

1. Corp.'s full legal name

2. your signature

3. your corporate title

- Keeping personal and corporate assets separate - corp. can acquire funds by:

1. sale of shares of stock (capital investment) - issue a stock certificate - record in stock certificate register 

2. income from operations

3. debt (loans) - make a promissory note

4. sale or leasing out of assets - issue bill of sale or lease

- Making and documenting corporate decisions: keep the paper trail

Board of Directors: elect officers - make decisions affecting corporate policy and major business decisions

Officers: (eg CEO) execute that policy and make day-to-day business decisions

Minutes: written record in corporate minute book

 

Factors the IRS considers to favor a determination that a person is (or was) an employee (rather than an independent contractor) include if the person:

1. is required to comply with company instructions about when, where, and how work is done

2. has been trained by the company

3. is integrated into the company's general business operations

4. must render services personally

5. uses assistance provided by the company

6. has a continuing relationship with the company

7. is required to work a set number of hours

8. must devote substantially full-time work to the company

9. works on the company's premises

10. must perform work in a preset sequence

11. must submit regular progress reports

12. is paid by the hour, week, or month

13. is reimbursed for all business and travel expenses

14. uses company tools and materials

15. has no significant investment in the facilities that are used

16. has no risk of loss

17. works for only one company

18. does not offer services to the public

19. can be discharged by the company, or

20. can terminate the relationship (quit) without incurring liability

 

Duties to employees

Duty to provide workers compensation insurance and unemployment compensation insurance, to pay agreed wages and withhold payroll taxes, and to provide a safe place to work

Independent contractors distinguished from employees

 

Workers Compensation Insurance

Most states law - if business has covered its employees with workers compensation insurance, an employee who is injured on the job is prohibited from suing the employer for such injuries

 

Withholding Taxes

Internal Revenue Service (IRS)

Has benefit of hindsight review

Right to control and direct test

 

Lines of Defense in Risk Management

type of business entity

accident prevention program 

liability insurance

exculpatory contracts

 

 

AOPA Pilot Magazine - March 2023

FINCEN’S BENEFICIAL OWNERSHIP INFORMATION RULE

 

On September 30, 2022, it was made official that tens of millions of corporations, (LLCs, and other entities and legal arrangements established in the US or conducting business here will be required to report certain information, called Beneficial Ownership Information (BOI), to the Financial Crimes Enforcement Network (FinCEN), part of the Treasury Department.

 

The new reporting requirements could affect many LLCs and corporations that currently own aircraft or conduct general aviation business.

 

You can fairly surmise that requiring millions upon millions of entities, partnerships, trusts, and other legal arrangements to report specific information to the federal government is going to be messy.

 

Unfortunately, the final rule, which establishes this requirement, is not for the faint of heart—clocking in at 99 pages—and requires navigating a series of confusing definitions and exceptions to understand its scope and determine applicability.

 

There are 4 important steps every entity or legal arrangement must take to determine whether and what to report to FinCEN.

1. It must determine whether it is a “reporting company.”

2. It must identify when the reporting company was created or registered.

3. It must identify and report all “beneficial owners.”

4. It must identify and report all “company applicants,” but only if the reporting company is created or registered on or after January 1, 2024. 

 

The upshot of the rule is that all reporting companies created before January 1, 2024, must provide specific information for all beneficial owners to FinCEN no later than January 1, 2025.

 

For reporting companies created or registered to do business in the US on or after January 1, 2024, information for beneficial owners and company applicants must be reported within 30 days.

 

The reporting requirement is broadly applicable to any “reporting company.”

 

“Reporting company” is, in turn, broadly defined as any corporation, LLC, or entity “created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.”

 

The definition also includes any foreign entity registered to do business in any state or tribal jurisdiction.

 

There are 23 types of entities that are exempt from the reporting requirement, but many exempt entities are already required to make reports to the government.

 

As you might expect, many corporations and LLCs that own an aircraft or conduct general aviation business will be considered reporting companies and will be required to report BOI to FinCEN.

 

“Beneficial owner” is also expansively defined as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.”

 

“Substantial control” and “ownership interest” are defined as well, with specific contours and standards necessary to determine every individual who is a beneficial owner. So, if you own an aircraft through an entity, or are a member of an LLC or other closely held business, there is a good chance that you will be a beneficial owner. 

 

A “company applicant” is an individual who files the documents that create a domestic reporting company or registers a foreign reporting company. Additionally, any individual who is primarily responsible for directing or controlling the filing is also considered a “company applicant.” This means you might be required to keep track of the individuals responsible for creating your entity as well all beneficial owners. 

 

While the goal of this rule is laudable—to reduce or eliminate the use of corporate structures for illicit purposes—it raises important questions concerning privacy and places a burden on millions of legitimate, law-abiding businesses. Failure to timely comply with the rule’s reporting requirements could result in both civil and criminal penalties. Additionally, although the rule itself does not automatically invalidate an entity’s legal status for failing to timely report BOI to FinCEN, it leaves open the door for state and tribal jurisdictions to levy such rules. For aircraft owners, it is important to recall that if an aircraft is owned by an entity, the aircraft’s registration could be jeopardized if the entity loses its legal standing. The BOI rule seems to raise more questions than answers; however, compliance is mandatory, and it is vital that entities be mindful of the looming deadlines. FinCEN has announced it will engage in additional rule making and publish guidance in the not-too-distant future. In fact, a proposed rule regarding access and safeguards to BOI was published on December 15, 2022.

 

Contact Me

Sarah Nilsson, J.D., Ph.D., MAS

 

602 561 8665

 

sarah@sarahnilsson.org

 

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Legal Disclaimer

The information on this website is for EDUCATIONAL purposes only and DOES NOT constitute legal advice. 

While the author of this website is an attorney, she is not YOUR attorney, nor are you her client, until you enter into a written agreement with Nilsson Law, PLLC to provide legal services.

In no event shall Sarah Nilsson be liable for any special, indirect, or consequential damages relating to this material, for any use of this website, or for any other hyperlinked website.

 

 

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