Why Texas Dog Professionals Should Operate Under an Entity to Avoid Risk
April 5, 2017
Dog trainers, behavior consultants, behaviorists, sitters and other dog professionals face an enormous amount of legal risk at their business. By learning about differing types of entity formation options, these professionals can look into different ways of protecting their business and avoiding personal liability.
Risks Dog Professionals Face
Dog professionals face a tremendous amount of risk. Any dog may bite or display aggressive behaviors. While in the professional's care, a dog might bite another customer, employee or other animals under the dog professional’s care. Dogs can also jump on people, cause property damage, or scare others. All of these factors can eventually lead to lawsuits against the dog professional. If an owner is sued, whether or not his or her personal assets may be subjected to any judgment depends on the business type.
Types of Business Entities
Many dog professionals start out in their own home, operating a small business. Dog training may be a side business until it becomes profitable enough for the owner to take over full time. As such, many dog professionals use the entity formation of a sole proprietorship as a default option. With the entity formation of a sole proprietorship, the owner remains personally liable for business activities. There is no real legal difference between the business and the person. The owner pays income taxes on the net business profits on his or her own personal return.
If the dog professional went into business with another professional, the parties may create a general partnership. Like with a sole proprietorship, partners report income on their personal income tax returns. Any debts or judgments against the business can jeopardize the partners' personal assets. While these business types are easy to form, they do little to curb the risk associated with operating a dog training or sitting business. If the business is sued, it is possible that the owner may lose his or her own personal assets in the process.
Other entity formation options may be worth considering due to the potential to mitigate risk for the business. Other business entity options include:
Types of Business Entities
In a limited partnership, there are limited partners and general partners. While the general partners face the same type of risk as partners in a general partnership, limited partners enjoy limited liability for the business’ debts, judgments or other liabilities only up to the amount of their investment into the business.
Corporations provide greater risk management because they are considered a separate entity than their owners. If a business is sued, the owner’s personal assets are not usually on the line. Two common types of entity formation of corporations are S Corporations and C Corporations. Both of these corporation types treat the business and the person as separate legal entities with different tax structures. S corporations have a limit on the number of shareholders there can be. Owners report their portion of the profit or loss of the company on their personal tax returns. Business assets and debts are distinct from personal assets and debts with both types of corporations. With C Corporations, the business is taxed on their profits and dividends paid to shareholders and is paid through corporate taxes. There are no limitations on the number of shareholders in the company. Both types of corporations require there to be annual meetings and for minutes to be recorded. Some dog professionals may steer away from this type of business entity due to having more responsibilities such as issuing stock to shareholders and attending annual meetings. If the business owners do not go through the official aspects of a corporation, they can lose the corporation protections.
Limited Liability Company
Another entity formation option to consider is that of the limited liability company. Many small and medium-sized businesses use this option because they are simple to form while providing risk management. Owners can choose whether to be taxed as a sole proprietorship or corporation. Limited liability companies are governed by operating agreements. Business owners enjoy a separate legal entity from the business with personal assets not being on the line. There is not a requirement for annual meetings or recording of minutes with a limited liability company.
Cite this article: Lynch, N. and Burgan, K. (2017). Amendments to the Texas Animal Cruelty Laws. Available: https://www.lynchlf.com/blog/why-texas-dog-professionals-should-operate-under-an-entity-to-avoid-risk/