LegalUnderpinnings of Business Law
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LegalUnderpinnings of Business Law
Inthis script, I will assume the role of the owner of five fictitiouscompanies under the name "Tinker`s Home Security Services."Presently, the companies are being sued for a breach of contract.Under this circumstance, I am personally liable as the owner onaccount of the lawsuit. Consequently, in this paper, I will compareand contrast my personal liability exposure on each independentbusiness entity. Additionally, I will briefly discuss the businessorganization form for the business I hope to own someday.
Tinker`sHome Security Service was my first business. Considering that it wasa private start-up, its set-up is a sole proprietorship. According toChowdhury (2015), a sole proprietorship is a type of business wherethe owner starts a business but does not incorporate. A soleproprietorship is easy to set-up because it only requires a namesearch, an operating license, and publicizing the official businessname in local dailies. The owner is personally liable but hasultimate control and power over a business (Chowdhury, 2015).
However,Seaquist (2012) advises that the greatest drawback with a soleproprietorship is that a company and its owners are essentially thesame entity. A sole proprietor cannot privately own any assetsbecause all business assets are considered personal property.Therefore, the author points out that all the assets of a businessowner are subject to being claimed by trade creditors. In light ofthis fact, my personal liability exposure as the owner of Tinker`sHome Security Service Sole Proprietor is highbecause the damages of the breach of contract litigation willdirectly affect me. The implication is that my private assets can belevied upon by my business creditors. To limit my liability exposure,I can use the asset protection trusts to safeguard my privateproperty. Employing this strategy, my assets will be considereddifferently which will provide limited protection for my assets.Additionally, I can change the form of business into one that limitsmy liability as an owner (like an LLC or a corporation).
Mysecond enterprise is Tinker & Tailor`s Home Security ServiceGeneral Partnership. Nenn (2014) observes that a general partnershipsurfaces when the owners (2-20 in number) of a business decide tostart a company. Each partner equally contributes property, labor,expertise, and money to keep the business afloat. All the partners ina general partnership equally share the profits, losses, and can besued for all or a portion of the debts of a company (Nenn, 2014).Nonetheless, Wirtz (2012) warns that the greatest setback with thisbusiness set-up is that all the partners have unlimited personalliability for the debts of an enterprise. This implies that when thecreditors exhaust the property of the firm, my assets will be subjectto being claimed.
Therefore,my liability exposure in the general partnership that makes Tinker &Tailor`s Home Security Service is highbecause any damages that result from the breach of contractlitigation will be shared equally. To reduce my liability as anowner, I can change the business form to one that exposes me tolesser risks (like an LLC or limited partnership). What`s more, I canemploy asset protection strategies like bankruptcy asset exemptionsto safeguard my private property from consideration when footingbusiness bills.
Theother business is Tinker & Tailor`s LP Company. Nenn (2014)observes that in a limited partnership, two or more people cometogether to create a company for the sole purpose of making profits.All the rights and obligations of each partner are clearly spelledout in comprehensive agreements that dictate the relationshipsbetween partners. The partners have an equal say, make decisionstogether, and cooperatively work through the challenges of anenterprise (Dignam and Lowry, 2014). For that reason, the damagesthat result from the breach of contract lawsuit are shared equallyamong partners. Nonetheless, Seaquist (2012) perceptively states thatit`s only the general partners that are held personally liablebecause silentpartnersare not involved in day-to-day activities but are only responsiblefor their investment.
Asa general partner of Tinker & Tailor`s LP Company, my personalliability exposure as the owner owing to the breach of contractlitigation is highbecause my private property can be seized by collecting creditorsafter exhausting the assets of the partnership. Even though silentpartners are shareholders, their exposure to liability is limited totheir injected levels of investment. As the owner, I can limit myliability exposure by changing the form of the business to an LLC ora corporation. Also, I can employ asset protection strategies tosafeguard private property from seizure to finance business debts.
Thefourth company is Tinker & Tailor`s Home Security Service, Inc.Gratton (2014) observes that a corporation is a business form wherethe shareholders are considered as different entities. According tothe author, stakeholders elect directors who appoint officers tooversee the management of a company. The owners must file Articles ofIncorporation to be identified as a legal entity. Since the owners ofa corporation are considered separate, they can own private property,borrow money, and can sue and get sued (Gratton, 2014).
Oneof the advantages of this set-up is that the shareholders of acorporation are shielded from legal and personal liability infulfilling the trading obligations of a company (Wirtz, 2012). Inlight of this fact, my personal liability exposure as an owner ofTinker & Tailor`s Home Security Service Inc. as a result of thebreach of contract litigation is smallbecause my private property cannot be seized. Since I am shieldedfrom personal liability, I can comfortably own private propertywithout the fear of the damages for a breach of contract litigation.As I am already considered as a separate entity from the corporation,I will not take any further steps to limit my exposure to liability.
Thelast company is the Tinker & Tailor`s Home Security Service, LLC.According to Dignam and Lowry (2014), a limited liability company isa hybrid that combines the best features of all the other types ofbusinesses. Because of this, it is the most preferred pick amongentrepreneurs. Unlike corporations, LLCs are easy to formulate, havea simple taxation process, and shield the members from corporateliability. In such a setting, an organization, and not the owners, isresponsible for the liabilities of a company (Dignam and Lowry,2014). To this effect, my personal liability exposure in Tinker &Tailor`s LLC is lowbecause I am shielded from the damages of the breach of contractlawsuit. Under this structure, I will not lose my private assets forthe purpose of sheltering the liabilities of the company. Since I amshielded from personal liability, there will be no need to increaselimitations on my liability exposure as an owner.
Infuture, I would like to own a chain of food stores across America.Considering that this business venture is capital intensive, I willmerge with other interested parties to pull resources together. Thebest business form for the food stores will be a limited liabilitycompany. I have chosen this set-up because unlike a corporation, anLLC is easy to form. Even though both require articles ofincorporation, it is simpler to institute an LLC than a corporation.What`s more, the management of an LLC is easier because members canelect managers but can also be structured to have members asmanagement. This is helpful because there are two styles ofmanagement to choose from. Additionally, taxation is streamlined inan LLC compared to a corporation because it is a check-the-boxsystem where the owners can choose what to cover for in their taxschedules. Furthermore, an LLC is the best because as an owner, Iwill be shielded from business liabilities because I will beconsidered a different entity from the company.
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