Not business as usual: New considerations for choosing your business entity.

• Author: Hartman, Tacy
• Position: Corporate Structure

If you intend to start a new business this year, you should be aware of some significant changes in Utah law that may affect the type of entity you select for your business. New laws governing general partnerships, limited partnerships and limited liability companies took effect on Jan. 1,2014, and apply to any such entity formed on or after that date.

Existing partnerships, limited partnerships and limited liability companies are governed by prior law until Jan. 1, 2016, when the new laws will also apply to them, unless they elect before then to be governed by the new laws.

Let's review the basic choices and see what's new.

SOLE PROPRIETORSHIP

The simplest choice is to form your business as a sole proprietorship, with you as the sole owner. You'll have to file a "doing business as" (dba) application to register a unique name with the Utah Department of Commerce, Division of Corporations and Commercial Code (the Division) and obtain a local business license. Profits and losses will be reported for tax purposes as part of your personal income. While simple, you will automatically have personal liability for the debts and other obligations of the business--something to avoid where possible.

GENERAL PARTNERSHIP

If you have more than one owner, the next simplest entity is a general partnership. A general partnership has essentially the same filing requirements as a sole proprietorship--a dba application and local business license. It will have to file state and federal tax information returns, but profits and losses are reported by the partners as part of their personal income.

If the partners agree (and every lawyer I know would recommend the agreement be in writing), they can allocate profits and losses in proportion to their investments in the partnership, equally, or under an entirely arbitrary formula. Without such agreement, distributions and profits and losses of partnerships formed after Jan. 1, 2014, or existing partnerships opting-in to Utah's new Uniform Partnership Act, are shared equally among the partners.

The major drawback of a general partnership used to be that each partner had joint and several personal liability for the obligations of the business. This drawback can be eliminated, with some exceptions, if you register the partnership as a limited liability partnership (LLP), in which case a partner will not be liable for the obligations of the partnership incurred during its existence as an LLP beyond his or her investment...