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 discharges 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



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


602 561 8665


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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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