Liability Exposure for Business Organizations

Liability Exposure for Business Organizations

Liability Exposure within Multiple Business Organizational Forms

BUSINESS FORM LEGAL ISSUE PERSONAL LIABILITY EXPOSURE
Sole Proprietor Sued for breach of contract The personal risk of exposure to liability is considerably high; the sole proprietor assumes unlimited personal liability for the breach of contract lawsuit and, under this business entity, puts all personal assets at risk for the sake of the organization itself.
General Partnership Sued for breach of contract The personal risk of exposure to liability is considerably high; both the partnership property (organizational assets) and individual assets are at risk; however, only a portion of the lawsuit is satisfied by individual property – that is, what remains after partnership property has been accounted for.
Limited Partnership (LP) Sued for breach of contract The personal risk of exposure to liability is moderate; the general partners’ property is severally liable and individual property is levied on once partnership property has been exhausted.
Corporation Sued for breach of contract The personal risk of exposure to liability is low; shareholders are not personally liable. Directors may face civil liability.
Limited Liability Company (LLC) Sued for breach of contract The personal risk of exposure to liability is low; members can be held personally liable, but commonly there is limited liability for the obligations/debts of the business. If the veil of limited liability is ‘pierced’ (Meiners, Mofsky & Tollison, 1978), the personal assets of the creditors can be levied.

A number of business operations and behaviors can create liability exposure for diverse organizational structures. Understanding the reality of litigious situations will help business owners avoid business difficulties, lawsuits, and risk exposure. However, while the perfect appraisal of an organization is impossible to achieve, there are steps an organization can take to ultimately reduce the risk of business mishaps and...

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