Question

Is the public served by the availability of business formats which protect individuals from personal liability? Identify and Describe the alternatives? Do you agree with the availability of business formats that protect individuals from personal liability? Defend your position.

Answer 1

There are various types of business formats to choose from, each with its own legal distinctions, when establishing a company. There are usually four major company types: sole proprietorships, partnerships, limited liability companies (LLC), and corporations.

1. Sole Proprietorship (Personally Liable)

A sole proprietorship is an unincorporated organization owned only by one person. Though it is the simplest of business types, it also offers the owner the least amount of protection. Unlike associations or companies, sole proprietorships do not offer the company a separate legal identity. Essentially, the business owner shares the same identity as the firm. Hence the promoter is entirely responsible for any and all of the company's obligations.

2. Partnership (Personally Liable)

A partnership, as the name suggests, is a firm shared by two or more individuals, known as partners. Partnerships can take advantage of flow-through taxation as are sole proprietorships. This means the income is viewed as the income of the holder, and it is taxed only once. Owners in partnerships are however liable for the firm 's liabilities.

3. Limited Liability Company (LLC) (Protection of Personal Liability)

Limited liability companies (LLCs) are among the most flexible types of enterprise. LLCs merge elements of alliances with those of companies. They retain the tax advantages of sole proprietorship and corporate limited liability. LLCs can choose between various tax treatment options. The LLC maintains its flow-through taxation status so long as it wants not to be regarded as a C company.

4. Corporation (Protection of Personal Liability)

Corporations are a separate legal entity that the shareholders create. Incorporating a company prevents shareholders from being legally responsible for debts or legal disputes resulting from the company. Compared with the other three forms of the company a corporation is more complicated to develop. An incorporation article must be drafted which includes details such as the number of shares to be issued, the name and location of the company and the intention of the company.

If one of the owners passes away or declares bankruptcy, the corporation is dissolved in sole proprietorships and partnerships. Corporations exist as a separate entity. They are also shielded from this circumstance, and can continue to operate even though the business owner passes away.

Protection of Personal Liability would benefit the public in terms of Industrial Scale Economies, Huge Government Taxes, New Technological Innovations, etc. This may not be afforded by personally liable business formats.