Legal underpinnings of business law

Running head: LEGAL UNDERPINNINGS 1

LEGAL UNDERPINNINGS 2

Legal Underpinnings of Business Law

Law suits can cause an organization a great deal of money, time, and stress. The costs associated with defending an organization can be very high in spite of innocence or guilt, or in the ability to win the case posed against them. This paper will compare and contrast my personal liability exposure in a breach of contract lawsuit in a variety of different organizational structures, as well as, how best to limit this liability exposure within each particular business organizational form.

Tinker’s Home Security Service (sole proprietorship) Tinker &Tailor’s Home Security Service (general partnership) Tinker & Tailor’s Home Security Service (LP) Tinker & Tailor’s Home Security Service, Inc. (corporation) Tinker & Tailor’s Home Security Service, LLC (LLC) Personally Liable for breach of contract and all of my assets, personal and business are subject to the lawsuit Split liability with partner for breach of contract and all assets of my partner and self, business and personal are subject to the lawsuit If I were the “limited partner, than I would have limited liability only to the value of my investment, and the general partners alone are subject to claims, or the lawsuit against the partnership. Limited liability to me personally. Liability is in shares of stock and personal assets are not included Limited liability to me, personal assets would not be subject to the lawsuit

Although there are pros and cons to all of the above scenarios, the LLC is the preferred form to limit liability for most businesses. To limit liability in each of the proposed business forms: a sole owner, partnership or group of partners should form a Limited Liability Company (LLC), as then only the business assets are at stake, and not the personal assets of owners, (Finch, 2012). A company can also purchase liability insurance to further protect the company from the mistakes of its employees and/or owners.

Low interest rates and properties selling far below the assessed value of just a few years ago have sparked interest in buying and investing in a property management company. Before analyzing which business type is best for a particular business, one should contact a trusted accountant or attorney for advice, (Seaquist, G., & Coulter, K., 2012). LLC’s owners are called members and are regulated at the state level; these organizations are gaining in popularity and would be of interest in this type of organization.

“LLC interests may wisely be transferred to family and revocable trusts, trusts alone do not offer the asset protection of an LLC. A LLC can limit the owners' exposure to lawsuits by vacation home users and creditors (limited liability). A LLC can impose transfer restrictions and prevent an owner from unilaterally selling an interest in the vacation home, making it easier to keep the vacation home in the founder's line (no right to partition). A LLC, as an entity rather than a property interest, can hold operating funds and effectively report sharing of income and expenses among the vacation home owners at tax time. A LLC has perpetual existence. A LLC operating agreement can establish rules for expense sharing, scheduling, ' dispute resolution and agreement modification without court intrusion” (Gardner, R., Welch, J., & Daff, L., 2010. p. 38).

There are also tax advantages to a Limited Liability Company. Business policies can be established that will provide income to owner upon retirement or to the surviving family upon his/her death, (Ellentuck, 2012). According to Judith Freeman (2000), “The LLC is a hybrid entity designed to combine the tax advantages of partnership with the benefits of limited liability, (p322).

This type of organization is not the easiest structure to form as it does require the help of an attorney and preferably an accountant as well. However, considering the tax advantages, business policies that can be established for family members, as well as the limited personal liability of its members; the disadvantages of having additional costs associated with structure organization and the complications of following state rules to comply with both state and federal filing laws deems it worth is weight. Therefore, in spite of its inconveniences, creating a Limited Liability Company for a management property would be the appropriate choice.

References

Ellentuck, A. (2012). Lifetime tax planning for LLC owners. Tax Adviser,

43(6), 412-414.

Finch, J. (2012). Managerial Marketing. San Diego, CA: Bridgepoint Education,

Inc. Retrieved from: http://content.ashford.edu/books

Freedman, J. (2000). Limited Liability: Large Company Theory and Small Firms.

Modern Law Review, 63(3), 317.

Gardner, R., Welch, J., & Daff, L. (2010). Keeping the Vacation Home in the

Family—Another Use for Limited Liability Companies. Journal Of Financial Planning, 23(2), 36-38.

Seaquist, G., & Coulter, K., (2012). Business Law for Managers. San Diego, CA:

Bridgepoint Education, Inc. Retrieved from: http://content.ashford.edu/books