Business Personal Liability Exposure Risk

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

Owning a business is very rewarding, however, it comes with many challenges as well. There are many torts and laws a business owner should be aware of in order to make sure they are abiding by the laws set forth before them. The characters have found themselves in a wide variety of situations that must be dealt with and handled accordingly.

People who do business as a sole proprietor or in a partnership are liable for the torts committed by them and for torts committed by the business and its agents. The best way to avoid tort liability is to set establish their business as a corporation or a limited liability company. A corporation or limited liability company will act as its own entity for all intent and purposes. When it becomes it own entity you will have to separate your finances from that of the business. Remember that it does not matter what type of business organization you select,

“Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless” (Martin Luther King, Jr., Strength to Love, 1963). These words of Martin Luther King, Jr. speaks volume to the society that we find ourselves. It is very rare to come across business owners like Frank who wants to do what is right; first of all, by God and secondly by the laws of the country. According to Henry Cheeseman, a limited liability company is an “unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnership, and corporations” (Business Law: Legal Environment Online Commerce, Business Ethics, and International Issue). The overall advantages of a limited liability company include personal liability protection, business liability protection, no ownership restrictions, flexible tax statues, no separate tax returns, no double taxation and flexible profit distribution.

Imagine what would happen if someone would trip over a display and break a leg while inside your grocery store. Also think what could happen if the heating system your workers installed in someone's house quit working on the coldest day of winter, or if a major fire would burn a large portion the clothing in your sporting goods store . You would be protected in each of the incidents, from possible lawsuits, and the damages you might incur from a disaster, if your small or large business has business liability insurance.

The purpose of this paper is to create a personal liability exposure matrix then compare and contrast the personal liability exposure of an owner of each type of business (sole proprietorship, general partnership, limited partnership, corporation, and limited liability corporation). This paper will also analyze how to limit the personal liability exposure of the owner of five separate business structures. The following five types of business organizational structures are covered; sole proprietorship, general partnership, Limited Partnership (LP), corporation, and Limited Liability Corporation (LLC). In addition, this paper will examine the best business organizational structure for KNG Music Production, a music production company

Personal Liability: With this sort of business entity, I would be protected from personal liability for business decision or actions of the

As discussed earlier in the chapter, one of the primary reasons to organize a business as a corporation or as a limited liability company (LLC) is to protect the personal assets of the principals. As a general rule of corporate law, which has been a part of the U.S. legal system for over two centuries, the principals of a corporation are not personally liable for a corporation’s debts and obligations. In other words, a corporation’s principals are generally immune from personal liability for the decisions they make and the actions they undertake on behalf of a corporation. For example, assume that Corporation A contracts with Corporation B to purchase equipment valued at $500,000. If Corporation A fails to pay Corporation B for the equipment it purchased, the principals of Corporation A are not personally liable to Corporation B. Rather, Corporation A, the party in privity of contract with Corporation B, remains liable for the liability it incurred. A so-called “corporate veil” protects the principals of Corporation A, which insulates them from legal actions taken by Corporation B to

Team C colleagues decided on the following opinions in respect to the advantages of commerce using shareholders and other entities for protection against personal liability losses. Commerce is the buying and selling of goods or services within cities, states, and globally. The legal structure of a business will establish the liable responsibilities of the business owner. When a business is established as a Corporation or an LLC this structure separates business owner’s personal assets from the business debit and liability.

The profession that I have chosen to concentrate on is that of a personal trainer, specifically issues concerning liability insurance. Personal trainers provide direction and supervision to clients within the realm sports and exercise realm. The chosen place of employment is often work out facilities. It may also include working with clients at other locations, such as the client or trainer’s homes. Personal trainers work both as employees and as independent contractors. I think that I would probably have an employer in the beginning, such as working for a work out club chain. After I acquired some experience and built up a clientele, I would probably consider working as an independent contractor. Either way there are risks that must be covered by insurance. Whether a client is injured due to negligence, or inherent risks (no fault), a trainer must protect themselves in case of a lawsuit. Additionally, frivolous lawsuits have become common place, and if an individual does not have insurance they could be left vulnerable. Both professional liability and general liability insurance are necessary to help to cover your costs in the event of an injury claim, whether you are truly responsible or not. This is an essential part of a comprehensive risk management strategy.

Limited liability has been the prevailing rule for corporations for more than a century. It creates incentives for excessive risk-taking by allowing companies to avoid the full costs of their activities. Strict application of this rule in all cases would lead to inflexibility and injustice, particularly in tort cases. Therefore, as suggested by Stephen Griffin—“in the interests of justice and to prevent subsidiary companies being used as convenient risk takers for their parent…the [corporate] veil must not become immovable.”[1] On the other hand, basing justice as the sole ground for veil lifting would undermine commercial certainty. The facts of each case should

Tort is a wrong. The law provides remedies to persons or businesses that are injured by the tortious actions of others (Cheeseman, 2014, p. 115). In the law of tort, there are two parties, including plaintiff and defendant. Usually, the plaintiff is a person directly affected either emotionally or physically by the incident because of the defendant’s actions while the defendant is the individual who injured the plaintiff (Staver Law Group). In this case, Mr. Speed is the defendant due to his behavior resulting to Ms. Smith, the plaintiff, who got injured. Moreover, he must be taken against by his actions in a court of law. In a tort action, there are three elements established. First, the plaintiff must establish that the defendant was under a legal duty to act in a particular action. Second, the plaintiff must demonstrate that the defendant breached this duty by failing to conform his or her behavior accordingly. Third, the plaintiff must prove that he or she suffered injury or loss as a direct result of the defendant’s breach (Lehman & Phelps, 2005, p. 57).

To begin, the amount of liability placed on owners was the first element inspected when trying to determine the optimal business structure to select. When one establishes a business under a sole proprietorship or partnership, they are not protected from the risk of having their personal assets targeted in a liability case. The ability of one’s personal assets to be targeted is known as unlimited liability. Because of

Business Risk is an uncertainty that is affiliated with a particular circumstance that could affect business operation or cause financial insecurities for the company. Business risk assessment is the process of determining whether a particular uncertain circumstance has the potential to threaten your business operations (Schwartz and Chandler, 2012). In the competitive market, it is important that businesses assess the risk regularly and respond with a sound reaction to be successful. Small businesses may not afford to determine the risks with a complicated statistical method, but proper use of Accounting Information System provides enough information to find out potential threats. This research discusses the methods of applying accounting information to assess the business risk. With the discussions of available research papers, it proposes better ways small businesses can determine the business risks and respond to it using the accounting information system. Taking precautions and paying attention to few procedures might reduce the risks significantly. From the research, it is concluded that small business owners can reduce likelihood of hazards, misappropriation of assets, frauds, misuse of information, and the marketing risk for a low cost. To achieve the goal, a checklist needs to be followed ensuring the proper segregation of duties, restricted access with secure server, frequent inventory and assets count, communication with customers, and employee training.

Restricted Liability: It implies that if the organization experience money related misery due to typical business action, the individual resources of shareholders won 't be