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
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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.
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