CHOOSING A BUSINESS ENTITY TYPE: How to avoid the common pitfalls that come with choosing your company's business structure.

• Author: Peterspm, Zach

All too often, an entrepreneur planning to launch a new business looks at entity types with an eye toward what kind of business structure he or she wants to create, instead of considering what business form best addresses what the business wants to avoid. Below are several issues to consider when deciding what structure best fits the needs of a new business, with a focus on understanding the legal rules that exist both in common law and in statutes.

PREMISES LIABILITY

In the recent Utah Supreme Court decision Rodriguez v. Kroger Co., the court reaffirmed that the "owner of a premises has a nondelegable duty to keep her premises reasonably safe for business invitees." (Id. at [paragraph] 14). The court further noted: "The very essence of the nondelegable duty doctrine ... is that the property owner is fully liable to a plaintiff who has been injured as a result of a breach of a nondelegable duty regardless of whether the property owner is actually at fault or the degree of fault." (Id).

In practical effect, this means that if your business has a retail component or provides professional services in which business invitees will come to your offices, it must keep the premises safe for all business invitees who visit the property. If the business's janitorial service creates a hazard, and a visiting party is injured as a result, the Utah Supreme Court has issued an opinion stating that the premises owner is liable for all injuries that may occur, even if the owner has no knowledge of the hazardous condition before the accident occurs.

To plan accordingly, your corporate form may want to take this into account, and you may need to consider creating multiple entities in order to isolate other valuable assets that your business may have.

ALTER EGO DOCTRINE

As the Utah Supreme Court has noted on numerous occasions, "[o]rdinarily a corporation is regarded as a legal entity, separate and apart from its stockholders."(Jones & Trevor Mktg., Inc. v. Lowry, 2012 UT 39 at [paragraph] 13). "The purpose of such separation is to insulate the stockholders from the liabilities of the corporation, thus limiting their liability to only the amount that the stockholders voluntarily put at risk." (Id).

As discussed in Jones & Trevor Mktg., the alter ego doctrine is used by plaintiffs and creditors to pierce the corporate veil and hold individual shareholders liable for the debts and liabilities of the corporation. Generally, a creditor may...