By Gina Bongiovi, special to bizNEVADA
To Incorporate or Not to Incorporate?
Let’s begin with discussing whether it makes sense to form an entity at all. If you print business cards and attend networking events, you are automatically acting as a sole proprietor. (You still need proper business licensing, but that’s a topic for another article.)
Operating a sole proprietorship means there is no distinction between you and your business and that you would be personally on the hook for any liability arising out of your actions as a business owner. Translated: you sign a contract for services and fail to pay; the party expecting the money can come after you personally.
Similarly, if you and another person come up with a business name, print business cards, and begin doing business, you have automatically formed a general partnership. This is an even riskier proposition because not only can each of you be held personally liable for any issues that arise with the business, but any partner can bind the “company” (the other partners) without first getting permission.
Forming an entity separates your personal assets from your business assets so that a lawsuit against the business doesn’t put the business owner’s personal assets at risk. The concept of the “corporate veil” describes this separation – it’s as if a veil shrouds the personal assets from liability stemming from business activities. The strength of the corporate veil depends on whether and how the business owner has managed the business. More on that later.
Historically, to avoid personal liability, one would have to form either a corporation or a limited partnership. A corporation would provide limited liability for the individual shareholders, but could not be taxed as a partnership, which was desirable for many companies. A limited partnership, with that partnership tax treatment, offered limited liability to those named as limited partners, but not to the required general partner who had unlimited liability.
The limited liability company was created to offer the best of both worlds – limited liability for all owners found in a corporation, but with partnership tax treatment previously found only in a limited partnership. By 1996, all 50 states recognized the LLC structure, and it remains a popular option today.
Read the rest of the story at south.biznevada.com.
Gina Bongiovi is the managing partner of Bongiovi Law Firm and dedicates her practice to serving small businesses. A Las Vegas native Bongiovi graduated magna cum laude from the UNLV Honors College with a B.S.B.A. in marketing and minor in business law in 2001. In 2007, she was one of the first students to earn a dual law degree/MBA from the William S. Boyd School of Law and College of Business at UNLV.