Business Organizations and Liabilites FINAL.docx

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Running head: BUSINESS ORGANIZATIONS 1 Business Organizations and Liabilities Sandra Michele Dorsey Legal Environment/BUS670/MOD1726A Professor Mark Cohen July 03, 2017
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BUSINESS ORGANIZATIONS 2 When deciding to start a business, one of the most crucial decisions an individual must make is which business entity to use. The type of business entity used can have a significant impact on business related aspects such as personal liability and taxation. Business entities fall into one of three main categories known as corporations, partnerships and sole proprietorships. A corporation is a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law. A partner s hip is a busin ess owned by two or more people. General, limited, and limited liability partnerships are the three most common types of for-profit partnerships. Partnerships offer benefits of shared responsibility but partnering with the wrong individuals could be disastrous (Holloway & Parmigiani, 2016). Lastly , a sole proprietorship is a business owned by one person. Business Entity Overview When multiple businesses are owned by one owner or corporation, these companies are structured to be independent of the other. This is necessary to limit the liability to only the company that is being sued. In the case of Tinker’s Home Security Service, the different entities were created to protect or limit the owners’ liability. The business entity can assist in reducing threats to the owners’ personal property, determine how many owners a business can have, and how the organization’s profits are taxed. Fundamentally, operating a business can expose the owners to lawsuits. Intentional acts, negligence or breached contracts can create hardship for the businesses. Lawsuits filed against the company create negative press for the company, they are time consuming, expensive and should be avoided (Seaquist, 2012). Business owners are often confused by the many different entity options, which further creates opportunities for exposure to lawsuits (Franklin, 2016). Therefore, it is imperative for a prospective business owner to understand the advantages and disadvantages of each entity and choose the entity that best fits
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