Phil, Aaron, and Jeff decide to form a lawn care/snow removal business. They come to you,...

Phil, Aaron, and Jeff decide to form a lawn care/snow removal business. They come to you, knowing you took a business law class in college, for advice on business organizations. The three men are concerned about potential liability for the business’ torts and contracts. None of them have ever driven a lawn mower or a snow plow so they want to make sure that if one of them runs into a client’s house, takes out some mailboxes and power lines, or injures an innocent bystander that they will not subject their own personal assets to liability. Answer the following.

a. Explain the risks of personal liability of each person if they are all general partners in a general partnership.

b. Explain the risks of personal liability of each person if Phil, Aaron, and Jeff become equal shareholders in a corporation.

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Expert Solution

a. Explain the risks of personal liability of each person if they are all general partners in a general partnership.

A general partnership is formed when a group of individuals agree to share all profits, losses, assets and liabilities of the partnership. The liability in general partnership is unlimited for each partner, which means that if partnership has a liability, then the partner is not just limited to his share of capital in partnership, his personal propoerties will also become liable to settle the liabilities of the partnership. Now this liability of partnership could be due to carelessness of one partner, but alla other partners will be equally liable according to their profit sharing ratio.

b. Explain the risks of personal liability of each person if Phil, Aaron, and Jeff become equal shareholders in a corporation.

A corporation unlike general partnership is a seperate legal entity. That is the corporation has seperate legal existance from the shareholders. Shareholders of a corporation have limited liability, that is the shareholders are only liable to corporation's liability upto the value of shares held by them. So shareholders personal property cannot be held liable if the company defaults in any payment.

ekkarill92 answered 1 year ago

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