The law at one time treated all incorporated businesses alike. Even if they were small operations headed by one person, they were required to file extensive written documents and to hold board elections and annual meetings for shareholders and boards of directors as if they were IBM-like giants.
Small business owners who didn't comply or opted out of incorporating forfeited the protection of the corporate liability shield: If sued, an owner could personally lose everything. Partnerships, such as law firms and accounting firms, experienced similar detrimental legal effects.
Change started coming in the 1990s, with one of the leading catalysts being Suffolk Law Professor Carter G. Bishop, who for more than 20 years has served, pro bono, the Uniform Laws Commission, or ULC, a century-old organization that promulgates state laws intended to be uniformly adopted by all 50 states.
As a ULC reporter, Bishop has been the primary drafter of uniform laws governing limited liability companies, or LLCs, and limited liability partnerships, or LLPs. These laws enable the formation of unincorporated businesses that protect their owners from being personally liable for the business's debts and obligations while offering superior tax status. Because of these legal reforms, sole proprietors are no longer burdened with inefficient formalities and paperwork, and partners needn't fear losing their homes or pensions if they're sued.
Virtually every U.S. state has a law that Bishop drafted or remnants thereof, and the professor drafted many of the commercial business entity laws that students study in classrooms across the country.
Only a handful of states had LLC statutes when Bishop began teaching the subject at the William Mitchell College of Law in St. Paul, Minn. The dean recruited him to chair a committee to draft an LLC statute for Minnesota. After more states began adopting LLC laws, a publisher commissioned Bishop to co-author the two-volume treatise, Limited Liability Companies: Tax and Business Law. When legal inconsistencies began sprouting up from state to state, Bishop flagged the issue for the ULC and offered to serve as a reporter to draft uniform laws for unincorporated businesses.
The ULC took him up on it. Now, according to Bishop, more LLPs and LLCs are formed than corporations in every state.
"Limited liability not only facilitates the formation of capital; it facilitates and encourages the operation and development of a business," says Bishop.
"It tells the business owner that they can risk and lose their capital, but they won't lose their kids and their family and their dog and their house and everything else as a result. That encourages businesses to develop. That encourages jobs."