By Adrienne Catherine H. Beauregard-Rheaume, Esq.
So last year, in the throes of pregnancy number 2, I posted a blog about the value of the d/b/a (“doing business as”). The conclusion, in case you missed it, was there is NO value of a d/b/a, but you’d have to stay tuned as to why. Then I didn’t follow up because, baby, whose Facebook-filtered photo accompanying this blog surely is what led you to click the link.
Hopefully you’re still tuned in a year and a couple months later. There is no value to a d/b/a because the individual behind the d/b/a’s assets are DOA when it comes to collecting a judgment against her for legal wrongdoing. Seeing a client come in as a d/b/a is default head-shaking territory. Seeing a party on the other side of the “V” from my client is a win, because you know that he will take the case more seriously with his personal assets on the line.
The whole theory in the US behind corporate structure and making it so individuals who are operating businesses aren’t liable for that business’ legal wrongdoings is the idea that people would be too afraid of having their personal assets up for grabs if there is some civil lawsuit in the future and that would stop them from going into business. So, because we think businesses are good for the country, we put protections in place (formal corporations) to stop that chill and let businesses flourish.
So, now that we’ve thrown the useless d/b/a out, what are your business entity options, and what are the key liability features of each?
Limited Liability Company (“LLC”): owners and managers of an LLC generally will not be liable for the debts or liabilities of the corporation unless personally negligent OR if the debtor can show that the “corporate veil” should be pierced to reach the owners’ individual assets (under what circumstances the corporate veil will be pierced varies from state to state).
Corporation (“Inc.s”): a corporation’s legal name is required to be followed by an “Inc.” Corporations will either be “C” corporations or “S” corporations. The difference between “C” and “S” corporations is all about how the corporation and its owners are taxed. With both, just like with an LLC, an owner of a corporation will not be liable for the debts or liabilities of the corporation unless she is personally negligent OR if the debtor can show that the “corporate veil” should be pierced to reach the owners’ individual assets (under what circumstances the corporate veil will be pierced varies from state to state).
General Partnership (“Partnership”): general partners’ assets are up for grabs to creditors. The general partnership is considered an entity but it doesn’t need to register with the Commonwealth.
Limited Liability Partnership (“LLP”): a limited partnership is a general partnership that has filed a registration form with the Commonwealth. A limited partner in an LLP does not have liability for the partnership’s debts or liabilities except for his own negligence, wrongful acts, errors, or omissions. It must have at least one general partner, whose individual assets can be gone after by a creditor, and one limited partner.
The positives and negatives to the above-entities mostly have to do with 1) what kind of individual liability the owners and/or participants are exposed to and 2) how the entity and its owners are taxed. And, not all businesses can choose freely from the above as to what corporate form works for them – there are certain particular requirements for each. If you are currently operating a business as a d/b/a, for the love of God, please stop everything you are doing and find your local friendly law firm to figure out what corporate form makes the most sense for your business.
The Law Offices of Beauregard, Burke & Franco is a civil litigation firm specializing in civil rights, business, malpractice, employment, municipal, and personal injury law. We have handled numerous cases involving business formation, disputes, and even piercing the corporate veil. If you have a business issue that you need to have addressed, you should reach out to an experienced attorney like those here at BBF.