Compare and Contrast: Personal Liability Exposure

Compare and Contrast: Personal Liability Exposure

The proprietor in a sole proprietorship business entity is the owner of the business and solely responsible for all its operations and management. The proprietor bears unlimited personal liability for the business losses and given the fact that the business has been sued for breach of contract, the owner will be liable. Since the sole proprietorship business has incurred a loss as a result of the lawsuit and would suffer a catastrophe, the proprietor/owner will be personally liable and will use personal assets to cater for the suit. Similarly, in a General Partnership, the general partner has the decision-making authority and unlimited liability in case of partnership debt or losses.

A partnership business may also add a limited partner, forming a Limited Partnership (LP). Limited partners have limited liability and do not take active role in the management, operation and decision-making processes of the business. The partners’ liability in Limited Partnership is limited to their contributions or amount of their investment in the business. In a Corporation, business operates as a legal entity and it is considered separate from the business owners. Law treat Corporations as individual persons and owners or stockholders of a Corporation have limited liability. When the business suffer loss as a result of the lawsuit, the owners or stockholders will only lose their contributions or amount they invested to the company to purchase their stock (Epstein, 2019). Similar to Corporations and Limited Partnership, Limited Liability Companies (LLC) have limited liability and owners are not exposed to personal liability for the loss or liabilities the company may suffer as a result of the lawsuit for breach of contract (Reuting, 2014).

My Future Business

My future business will focus on offering the Information Technology services and Technical Consultancy Services for most of the Dallas Small businesses. Also, the company will targets the Home-based PC and Laptop users. The company name will be Tip Computer Consulting Company, LLC. The company will mainly emphasize on the responsiveness, marketing, quality, as well as establishing new customers and retaining them. It will display its commitment in serving the customers and retaining sustainability, as a business and as individual. I will partner with other entrepreneurs to establish the company. The company will be incorporated as LLC, which is expected to be explored as a later option. Since the TCC Company will start as a small business initially, it will need just a simple organization structure. The Tip Computer Consulting Company will provide the IT Consulting services and System Upgraded to two central categories, that is, the Domestic/home PC Users and Small Business Office Users. TCC will also provide the service in a professional way to the business and home-based owners, assuring them a reliable and convenient technical and technological assistance for their systems, as well as quick-response.

Personal Liability Exposure

As one owner of the company, I will have limited liability to my LLC’s liabilities and debts. The major difference between an LLC and partnership is that the Limited Liability Company typically separates the persona assets of the owners and business assets (Epstein, 2019). The concept insulate the owners from the liabilities and debts incurred by the LLC. However, the company will function in a similar manner to partnership, given the fact that the LLC’s profit will go through the tax returns of the business owners. Similar to owners or shareholders of the corporation, I will be protected from personal liability for business claims and debts. If the company itself will fail to pay creditors such as landlord, lenders, and suppliers, they will not legally take my personal assets like cars, houses, or other personal possessions. Given that only LLC assets may be used to settle business debts, all LLC owners and co-owners in my business will stand to lose only their amount of contributions or the money they invested in the company (Mancuso, 2016).

Management

Management of my LLC will be flexible. Since it will start as a small LLC, the owners will participate equally in the business management through an arrangement known as member management. However, for some period, the LLC may adopt alternative management structure such as manager management. In this case, I will designate one or more co-owners to take the role for managing the company and the nonmanaging owners will be required to sit back, oversee management and share the profits from business. In the manager-managed structure, only the manager selected will get to vote, mainly on the management decisions and will act as an agent of the company.

Pass-Through Taxation

When it comes to taxation, unlike a corporation, our LLC will not be considered as separate from the owners. Therefore, the company will avoid double taxation. The LLC is considered as a “pass-through entity” by the Internal Revenue Service, similar to sole proprietorships and partnerships (Epstein, 2019). The LLC’s income will pass through the business to the members of the LLC, who will report their respective shares of profits or (losses) on their individual income tax returns. However, every member of the LLC will be required to make quarterly estimated tax payment to the Federal Internal Revenue Services (IRS). The LLC itself will not pay any tax, but co-owned LLCs are supposed to file Form 1065 for informational return with the IRS annually (Reuting, 2014). Form 1065 is filed even by partnerships, which sets out the share of LLC’s profits or (losses) to members of the LLC. IRS use this form to review and ensure that LLC members correctly report their share or income.

Ease of Formation

The process of forming an LLC is simple and to create an LLC, I will file “Article of Organization” with the State Government’s LLC division (Steingold, 2016). In most cases, the office is in the same department with the Corporation division, as a portion of the State’s office. The cost for filing the Article of Organization ranges from approximately $100 to $800 and it is possible to form an LLC alone or as the only owner. I will be required to specify some few basics about the business, including its address and name, as well as the contact information for the owner or individual involved with the LLC, who will get legal papers on behalf of the company. The names and addresses of the member of LLC will be listed later. I will also draft a written LLC operating agreement setting out the LLC members’ responsibilities and rights, their profits share, and their rate of interests in the company (Epstein, 2019). That is how simple it will be to form an LLC.

Conclusion

There are different forms of legal business ownership. When setting up a business, business owners have to choose how they want their business ownership to be legally organized. The proprietor in Sole Proprietorship and general partner in General Partnership bears unlimited personal liability for the business losses and given the fact that the business has been sued for breach of contract, the owner will be liable. However, owners of Limited Partnership (LP), Corporations and Limited Liability Companies (LLC) have limited personal liability and only lose their contributions or amount of investments to the company in case the business suffer liabilities, loss or debts. Personally, I believe that an LLC is best form of legal ownership for business because of its simple formation process, limited personal liabilities, pass-through taxation and flexible management structure.

References

Epstein, D. G. (2019). Business structures – Casebook Plus. ST. Paul: West Academic Publishing.

Mancuso, A. (2016). Your limited liability company: An operating manual. Berkeley, CA: Nolo.

Mancuso, A. (2017). LLC or corporation?: Choose the right form for your business. Berkeley, California: Nolo.

Reuting, J. (2014). Limited Liability Companies For Dummies. Hoboken, NJ: Wiley.

Steingold, D. M. (2016). Nolo’s guide to single-member LLCs: How to form and run your single-member limited liability company. Berkeley, California: Nolo.