Do You Need Separate Entity for PERS Business? May 2, 2013

Do You Need Separate Entity for PERS Business?

May 2, 2013

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 Question

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Ken,

    I am about to venture off into the PERS business and have started my research in an effort to put my best foot forward.  I told my local attorney of my desire to enter into this business and he suggested that I create a separate company for this business due to the nature alone.  

What are your thoughts? 

anon

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Answer

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    Ideally the idea of operating separate entities for different business ventures is a good idea.  The problem is follow through.  If you're not going to really operate as separate businesses then you have fooled no one except yourself.  

    Just as one person is not generally liable for the debts of another absent special circumstances, one corporate or business entity isn't liable for another.  The problem is that you can't call yourself Tom today, Dick tomorrow and Harry the next day, and expect to avoid liability no matter which name you used.  Of you go to the trouble of creating a business entity then you need to be certain that it is truly independent.  How do you measure this independence?  One way to look at it is think of each business as owned to completely different people, people who don't like or trust each other.  Under those circumstances you wouldn't expect two independent businesses to use the same phone number, bank at the same bank, share a common letterhead, office and personnel, common accountant, and insurance broker and policy.  If you are going to operate as a single entity then there's no point in making believe you're two separate ones.  

    So, if you're in the alarm business and PERS is going to be one of your operations, it's not likely that you're going to operate it independently enough to avoid alter ego arguments in the event one entity has a debt that can't be paid.  

    If you are going to operate a separate company then a different entity makes sense so you don't expose your other businesses to the debts of the PERS operation.

    Make sure you use a PERS contract.

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