Rebecca A. Bowman, Esq., P.E.
I’ve been running into a problem lately into which I should not have been running. (Don’t you love the sometime-weirdness of correct grammar?) I want to make sure that you are not contributing to this problem. By the way, nothing in the column is intended to provide legal advice. I am merely repeating the requirements of the Commonwealth Department of State.
Whatever entity form you have chosen, if you are presenting yourself as anything other than a sole proprietorship using your own name, you have to register/file with the Commonwealth AND you have to keep your registration/certification/filing current AND you have to provide a decennial (before you go look that up, that every ten years) update.
Just to be clear, let’s look at some of the alternatives. I’ll use my name, just for the fun of it. If I do business as a sole proprietorship using my name (i.e. Rebecca Bowman, P.E.), I’m fine and I can skip down to the last three paragraphs.
If I do business as a sole proprietorship but use a name other than my name (i.e. Brilliant Design Engineering), I have to register “Brilliant Design Engineering” as a fictitious name. This is true even if I am using “Bowman Engineering.” Understand, too, that I may not have the right to use my own name in this modified fashion if someone else has registered the name first, especially if I had a common name (i.e. John Smith).1 If I change, cancel, or withdraw my use of the fictitious name, I must also file the corresponding form.2
If I do business as a general partnership (i.e. Bowman Associates),3 I must register my partnership with the Commonwealth and disclose the names and addresses of EACH of the partners. As you might anticipate, I must keep that information current with the Commonwealth. Anyone may legitimately sue a party identified as a partner with the Commonwealth, but may have difficulty suing someone he KNOWS is a partner but is not on file with the Commonwealth.
If I do business as an LP (Limited Partnership), (i.e. Bowman Engineering, L.P.) I must file a Certificate of Limited Partnership and all general partners must be identified.4 There are a wide variety of forms required to update the public record to reflect internal (and some external) changes to the organization.
There is even an LLP (Limited Liability Partnership), (i.e. Bowman Engineering, L.L.P.) for which I must file a Statement of Registration, spelling out whether or not the entity is a general partnership (with all partners having equal powers to act and to bind the entity) or a limited partnership.5 Interestingly and surprisingly, if you elect a limited partnership, the managing partner does not have to be identified.
For either a general or a limited liability partnership, every partner is legally presumed to have full authority to act on behalf of and bind the entity unless a Certificate of Partnership Authority is filed.6 This certificate puts the public on notice that only the identified parties and no one else has authority to act on behalf of and bind the entity.
If I do business as an LLC (Limited Liability Company), (i.e. Bowman Engineer, L.L.C.) I must file a Certificate of Organization.7 There are wide variety of forms required to update the public record to reflect internal (and some external) changes to the organization.
If I do business as a C-corp, (i.e. Bowman Engineering, Inc.) I must file articles of incorporation.8 (The rules are the same for an S-corporation; I just file an additional form with the IRS electing S-corp status.) There are a wide variety of forms required for changes in officers, changes in address, change in status, mergers, dissolution, etc. My entity name does not have to be difference in any way to indicate that I have elected S-corp status. Election of S-corp status is primarily related to taxation benefits, but that benefit carries with it restrictions on the nature of corporate shareholders.
If I do business as a P.C. (Professional Corporation), (i.e. Bowman Engineering, P.C.), I must meet all the requirements of a corporation, may elect S-corporation status, and must meet the requirements of Pennsylvania’s professional corporation statute.9 There is an inherent prestige build into the P.C. designation, but the price of that prestige is restrictions on the qualification of corporation shareholders. The real challenge arises if I want to operate in multiple states. Many states have differing requirements for professional corporations and many are fairly-openly hostile to foreign (i.e. out-of-state) professional corporations.
By the way, just in case you were wondering, no, I do not know why the convention is to use the periods associate with an abbreviation for P.C., and often for L.P., but not for LLP or LLC.
Now that we’ve run through all that, why do I bring that up? The birth of an entity is exciting and full of promise. The death of an entity is sometimes ugly, often dismal, and tempting to minimize. However, if you do not modify or terminate your entity correctly, the entity continues to linger on in a vegetative state. Here is the key, though: If you do not wrap things up properly, the liability associated with the entity does not cease.
I’m in the middle of a case now, involving a construction company set up as a corporation. I don’t know whether it’s a C-corporation or an S-corporation and, for the moment, I don’t care. The corporation ceased to operate several years ago, BUT NEVER WRAPPED UP. Hence, it still remains in existence and I can still sue it. A properly-wrapped up entity has to report any anticipated liabilities and address them before the Commonwealth will permit the entity to be terminated/dissolved. Once properly terminated/dissolved, there is no longer an entity to sue.
Many of us are solos and small businesses, established and continued on the basis of our personal reputations. Structural engineers, especially, have long tails (yes, that’s the correct word) of statutory liability. We tend to assume that when we stop practicing, our entities stop, too. However, ending an entity is not a passive event, but requires a series of affirmative acts.
If you don’t wrap up properly you may – without even realizing it – continue to be in a Risky Business.
Rebecca A. Bowman, Esq., P.E. is the principal of a woman-owned business, certified in estate planning, civil engineering, dispute resolution, real estate, legal services, strategic development, and training by Allegheny County, PennDOT, PADGS, PAT, Massachusetts, New York State and New Jersey Transit. She is experienced in engineering design and forensic analysis, construction/project management, dispute resolution, real estate and boundary law, small business start-up, employment law, and nonprofit support. She is a registered professional engineer and a certified arbitrator, mediator, and Christian conciliator. Mrs. Bowman is a frequent CPE lecturer for a variety of providers. She received her B.S. degree in civil engineering, from the University of North Dakota, her M.B.A. degree from Oklahoma University and her J.D. degree from Duquesne University. Mrs. Bowman is involved with the American Arbitration Association, and the Bar Association. She volunteers with the Senior Action Coalition, Legal Aid, Children and Youth Services, City Mission, Habitat for Humanity, Family Promise of Southwestern Pennsylvania, MATHCOUNTS, and National History Day.