Question

Your friend, Tom just launched an e-commerce company to sell accessories for cars, When you asked him about his form of business ownership, be said that he was organized as a sole proprietorship. When you asked why, he replies that his father was a sole proprietor for the last 35 years, and he never had any problems. Do you think Tom is making a wise choice? What would you advise him?

Answer 1

This is not a wise decision.

E-commerce is the way of business done electronically. In this form, sellers and purchasers do not have face to face meeting, since the whole process is based on internet. Therefore, the risk of liability is huge here because any sort of error or misconduct knowingly or unknowingly make the owner held responsible, and if required the court may take personal property of that owner. This is the risk of sole proprietorship, where there is single owner. Although there was no problem in the last 35 years, it doesn’t mean that it will not happen in future; therefore, on safer side such form of business should be stopped.

Now the question is what type of business form appropriate here? The answer is Limited Liability Company (LLC). In this form, owners have liability up to the extent of their investment in shares of the company. Therefore, their personal properties are not in danger. The only problem is to acquire few other owners apart from the person T. In this form of business, the LLC has separate legal entity; therefore, owners are distinct from the business.