BUS 670 Week 1Assignment Legal Underpinnings of Business Law

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Abstract

This study examines the personal liability exposure due to the breach of contract that results in suing Tinker’s Home security service operating as a sole proprietorship, general partnership, liability partnership, a corporation and as a limited liability company. A matrix that lists all businesses is developed and the obligations that each is meant to fulfill alongside its failure that leads to the breach of contrast. Law suits are there not to punish the breaching party but to return the injured one to the position such a party would be in if the breach had not occurred. In the event of the breach, a liability is created which requires the transfer of economic benefits that include money, goods or services to the affected person. An analysis is done on how the liability exposure as the owner might be limited for each business entity and a description of the business that I currently own. In my business, I will concentrate on my personal liability exposure, its management, the taxation and its ease of formation.

A matrix that lists each business.

A personal liability exposure as an owner as a result of the lawsuit.

For the case of Tinker’s Home Security Service (sole proprietorship), it is inseparable from its owner and since the owner of a sole proprietorship is expected to be personally liable for the entire amount of any business-related obligations which include debts in the case where profits from the business cannot pay the debts incurred. The owner can also be personally sued by the creditor to satisfy the debt. However, liability insurance can be purchased for the business to help in the elimination of the tortious liability (Hansmann, H., & Kraakman, R. 1991).

For the case of Tinker & Tailor’s Home Security Service (general partnership), each partner is jointly liable but has unlimited personal liability. The general partner is also a managing partner and since this person is active in the day-to-day operations of the business, the partners can legally act on behalf of the entire business without necessarily the other partner’s permission or knowledge. The partners have very a very poor asset protection and can be sued as a group for the business obligations (Churchill, C. F. 2006).

For the case of Tinker & Tailor’s Home Security Service (LP), unlike the case with limited partnerships, limited partnerships have at least one general partner whose main duty is to control the company’s day-to-day operations. This partner is personally liable for business debts, limited partnerships also have passive partners known as the limited partners who contribute capital to the business in the form of investment money, but such partners have a minimal control over daily business operations or decisions and the advantage of the limited partners is that they are not personally liable for any of the business debts (Ghadas, Z. A. A., & Ali, E. R. A. E. 2012).

For the case of Tinker & Tailor’s Home Security Service, Inc. (corporation), this firm has a legal existence and hence is an entity separate and completely distinct from its owners. The corporation is owned by shareholders who share in the profits and losses generated through the operations of the firm. A corporation has three distinct characteristics which include having a legal existence and therefore it can own, buy, sell, enter into a contract, and sue other persons and even firms, and be sued by them as well. Just like a person, it can do good and be rewarded, and can be punished if it commits an offence. A corporation has a limited liability which indicates that an organization and its owners have a limited liability to the creditors and other obligors in case of a law suit only up to the resources that the firm owns, unless the owners give personal and legal guaranties to such debts. Lastly, a corporation has continuity of existence. Therefore, a firm can live beyond the life spans of the current owners, because its ownership can be transferred by the sale or gift of shares (Shavell, S. 2009).

For the case of Tinker & Tailor’s Home Security Service, LLC (LLC), it is a limited liability company and as such, it’s a hybrid type of legal structure that provides all the limited liability features of a corporation. The tax efficiencies and operational flexibility are just like those of a partnership. Depending on the state in which the LLC is found, the members or owners can consist of a single individual, two or a minimum of seven in most cases. Unlike shareholders in a corporation, limited liability companies are not taxed as a separate business entities. For their case, all profits and losses are “passed through” this business to each member of the LLC. The LLC members report profits and losses directly on their personal federal tax returns, just as the case with the owners of a partnership.

I want to start a sole proprietorship business to create mobile applications, web design and graphic design products next month. By so doing, I will personally own the business. There will be no stockholders or partners to consult in the management of my business and therefore decision making shall be very fast and more flexible. The requirements for starting a sole proprietorship is straightforward and are done quickly, without any necessary legal help, which makes it an inexpensive form of business start-up method. Since there is no legal protection, as the business owner, I will be legally responsible for all debts and the company’s actions. This means that any bank that I default in payments can come after my house to satisfy a delinquent company loan, or customers could sue me for damages if the company’s product injured them. For this reason, I will be personally responsible for my actions. My decision was influenced by such factors as it is the easiest and the least expensive form of ownership to organize, Sole proprietors are in complete control of the business, and within the parameters of the law, they may make decisions as they see fit, the profits from the business would flow-through directly to my own personal tax return hence less resources would be spent on revenue and lastly, the business is easy to dissolve, if desired.

Reference

Hansmann, H., & Kraakman, R. (1991). Toward unlimited shareholder liability for corporate torts. Yale Law Journal, 1879-1934.

Churchill, C. F. (2006). Protecting the poor: a microinsurance compendium (Vol. 1). International Labour Organization.

Ghadas, Z. A. A., & Ali, E. R. A. E. (2012). The Development of Partnership Based Structure In Comparison To the Concept of MushÉrakah (Sharikah) with Special Reference to Malaysia. Journal of Islam in Asia, 8(2), 293-315.

Shavell, S. (2009). Foundations of economic analysis of law. Harvard University Press.