Legal Underpinnings of Business Law: Liability Exposures
Imagine that you own each of the following businesses:
Tinker’s Home Security Service (sole proprietorship)
Tinker & Tailor’s Home Security Service (general partnership)
Tinker & Tailor’s Home Security Service (LP)
Tinker & Tailor’s Home Security Service, Inc. (corporation)
Tinker & Tailor’s Home Security Service, LLC (LLC)
The businesses are being sued for breach of contract. Create a matrix that lists each business, and compare and contrast your personal liability exposure as an owner as a result of the lawsuit.
For each business entity, analyze how you might limit your liability exposure as an owner.
Describe a business that you may own some day or that you currently own. (Even if you never plan to own a business, pretend as if you will do so for the purposes of this assignment.) Examine the best business organizational form for the business that you have described, including in your examination personal liability exposure, management, taxation, and ease of formation.
Submit a four- to five-page paper (not including title and reference pages). Your paper must be formatted according to APA style as outlined in the approved APA style guide and you must cite at least three scholarly sources in addition to the textbook.
Legal Underpinnings of Business Law
Student’s Name
Institutional Affiliation
Instructor
Date
Liability Exposures
The matrix below assesses the personal liability exposures that various types of businesses attract in case of a breach of contract. Liability exposures comprise situations or conditions that confer the prospects or probability of an organization becoming financially and legally liable for damage, injury, or harm to another party (Davidson & Forsythe, 2020). Recommendations for limiting the stated liability exposures are also analyzed.
Type of Business Organization
Liability Exposures
How to Limit Liability Exposures
Tinker’s Home Security Service (Sole Proprietorship)
A sole proprietorship is owned and managed by one person (the sole proprietor) responsible for all aspects of the business. A sole proprietor is exposed to all liabilities that arise in the course of operating their enterprise. This is referred to as unlimited personal liability, which means that if the sole proprietor cannot repay the debts acquired for the business, the creditors can go after what the enterprise and its owner possess. There is no distinction between business and personal assets (Mitchell & Fontana, 2010).
In an instance where Tinker’s Home Security service has breached a contract with a client or any other significant element of their business enterprise, Tinker is liable for the breach. Therefore, he is legally required to pay for the damages (or compensate) arising from the breach of contract.
As the sole owner, manager, and decision maker of Tinker’s Home Security Services, Tinker should work towards limiting his liability exposures. Tinker should behave with demonstrable responsibility and lawfully towards his third parties (clients, customers, the general public, and competitors). Additionally, he should purchase various types of insurance (general liability insurance, professional and product or service liability insurance, and commercial property insurance) to cover risks. As a sole proprietor, he must assess the enterprise by identifying potential risks and implementing procedures and measures that minimize them (Stulz, 2008).
Structuring the enterprise into a Limited Liability Corporation (LLC) will limit liability exposures. In LLCs, business assets (and not private) will be used to cover damages, injuries, or debts.
Tinker & Tailor’s Home Security Service (General Partnership)
A general partnership is an association of two or more people to carry out a business for profit purposes (Mitchell & Fontana, 2010). Tinker and Tailor are co-owners of the security service enterprise in this business organization. Both have an equal right to manage the business and share its profits and losses per the partnership agreement.
In case of debts and damages that arise from tort liability, breach of contracts, or liability to the federal or national government for fees required in operating a business or taxes, each partner has unlimited liability for these debts. For instance, if the enterprise is sued for a breach of contract, each partner should contribute towards repayment of damages (or compensation) incurred. However, if Tinker is sued for a breach of contract, he must fully discharge the debt and later seek reimbursement from Taylor for his share of the liability.
To limit liability exposures associated with a partnership, an individual should weigh the rewards and risks of being a partner. If they want an active role in the company’s daily operations, they become a general partner. They have equal liability in case of debts or damages due to a brea...