It is crucial to have a thorough grasp of the structure, administration, and liability of businesses before attempting to launch one. The five distinct company structures that make up the businesses discussed in this paper can be divided into five categories. While Tinker & Tailor's Home Security Service is a general partnership, Tinker's Home Security Service is a single proprietorship. While Tinker & Tailor's Home Security Service, Inc. is a corporation, Tinker & Tailor's Home Security Service is a Limited Partnership firm. The Limited Liability Corporation Tinker & Tailor's Home Security Service, LLC is the last one. The above-mentioned businesses, if sued for breaching a contract, will have varying liabilities to the owner as will be
discussed in this paper. The discussion will also include an analysis of how the businessperson may limit the liability. Lastly, the paper will describe a business that I plan to own someday, outlining the best organizational form
Business Matrix and Their Liability Exposure
If sued for breach of contract, the businesses mentioned above, they will have the following scope of liability, each having a different cope of liability as shown in the table below.
Name of Business
Type of Business
Liability
Tinker’s Home Security Service
Sole Proprietorship
Single Owner
Tinker & Tailor’s Home Security Service
General Partnership
Partners
Tinker & Tailor’s Home Security Service
Limited Partnership
General Partner
Tinker & Tailor’s Home Security Service, Inc.
Corporation
Corporation
Tinker & Tailor’s Home Security Service, LLC
Limited Liability Corporation
Company is liable
Liability Exposure for Sole Proprietorship
Sole proprietorship describes a business under the ownership of one individual. In view of Aguir, Burns, Mansi, & Wald (2014), this form of business is the cheapest and the easiest to start and manage. Aguir, et al. (2014) argue that sole proprietorship is simple in its formation process since it only requires the sole proprietor to register with state through certification, particularly using the federal tax identification number. A sole proprietor is a person who owns and operates sole proprietorship business. In case, sole proprietorship loses a pending lawsuit for breaching a contract, both business-related and personal assets of the owner become subject to lawsuit (Seaquist, 2012). In such a case, all income generated by the owner is considered as personal income and hence reported on IRS Form 1040.
Liability Exposure for General and Limited Partnerships
There are two types of business partnerships: general and limited partnerships. In view of Franzetti (2015), the greatest contemporary companies started from partnerships. Partnership businesses are fairly easy to start since no registration is required, apart from registration with the state, which often takes little time. In limited partnerships, the liability is limited up to the amount invested in the business by the limited partner. In general partnership on the other hand, all partners have equal liability for any arising lawsuit consequences. On taxation, the incomes derived from general partnerships are taxed as if they are incomes earned by individual persons working for other companies. According to Franzetti (2015), it is always advisable that partnership businesses detail out clearly, the level of liability to be carried by each partner. Such an agreement has to come handy in situations when the business is facing lawsuit on breach of contract.
Liability Exposure for Corporations & LLC
LLCs and corporations are undeniably the most common companies. Franzetti (2015) argues that just like limited partnerships, corporations are viewed as separate entities that have to be approved by the state, besides adhering to all federal and state regulations. Though managed by company officers, the shareholders of corporations are the business owners (Aguir, et al., 2014). Compared to other forms of businesses, creating and maintaining a corporation is the most difficult. The reason is that all business relations, policies, action, and finances have to follow laws made by numerous state and federal agencies such as Minimum Wage Laws, EEOC, OSHA, and ADA. According to Seaquist (2012), the business also experiences double taxation, that is, both the corporation and shareholders are taxed on income and interest earned.
Overall, it is vital to be cognizant of the liability factors when forming a business. In sole proprietorships, the liability falls on the sole proprietor who risks losing his or her personal assets during a lawsuit. The implication is that while sole proprietorship is the easiest form of business to start and manage, and requires little or no legal documentations, it may be the most lethally affected in case of lawsuit, since the owner may lose both his personal and business assets. In limited and general partnerships, the liability is shared equally among the partners. In corporations and LLCs, the business is considered as a separate body and taxed differently from its shareholders, and the federal and state government determines the rate of taxation. As a businessperson, I would prefer corporation as a form of business. While corporations are the most difficult to start, they are the safest in matters of liabilities for stakeholders. In situation of lawsuits, the individual shareholders are mot sued. Rather, the company is sued.
References
Aguir, I., Burns, N., Mansi, S. A., & Wald, J. K. (2014). Liability protection, director compensation, and incentives. Journal of Financial Intermediation, 23(4), 570-589.
Franzetti, A. (2015). Risks of the sharing economy. Risk Management, 62(3), 10-12.
Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.
