Last week in Marijuana and Bankruptcy: Not a Good Mix, we promised you a follow-up post discussing the importance of insulating your personal assets and other businesses from your cannabis ventures. Today we make good on that promise. We cannot overemphasize the importance of the points below. If you have a cannabis business, are in the process of opening one, or are even thinking of opening one, this is must-read stuff.
First, some absolute basics:
- Corporate entities* exist to protect their owners (i.e., shareholders or LLC members) from company liabilities and debts. Generally speaking, the owners cannot be held liable or responsible for what the company does.
- In contrast, sole proprietorships (and, in most cases, partnerships), are legally one and the same with their owners.
- Corporate entities have “personhood” in the sense that they are able to enter into contracts, buy, sell, lease, and borrow real and personal property and money. Corporate entities are also able to sue and be sued.
- Unlike actual people, a corporation can exist in perpetuity.
For more on that trouble, and how to avoid it, check back later this week.
* We use the term “corporate entity” to refer to both corporations and limited liability companies though this usage is not technically correct. Similarly, we may refer to a “company” debt or obligation (in contrast to a personal one), meaning that of either a corporation or LLC. For purposes of this post, the distinctions between these types of entities are not important. However, the differences between an LLC and a corporation can have a significant effect on taxes, governance, and a host of other issues.
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