As pertaining to a sole proprietorship or partnership, how much am I legal responsible from a business perspective?
For instance, if someone sues me because they do not like the product offered or if someone else sues me because of a contract violation. How much is the owners responsible for (in this case me) and how much is the business responsible for? Or, in the eyes of legal matters, is the owner of the partnership or proprietorship responsible for all legal matters?
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In which country? – Rowland Shaw 13 years ago
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United States, sorry. – Justin 13 years ago
2 Answers
Suits against sole proprietorships and partnerships can access the owner's (owners') personal assets directly - so yes, you are liable for damages from a contract violation. This is why many businesses opt to go with LLCs, LLPs, Corporations, and other limited liability entities.
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+1 for spelling out that a sole-proprietorship makes you directly liable for any issues. – Jarie Bolander 13 years ago
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+1 for the liability - though even in a corporation, the directors are usually liable for certain things, e.g. tax evasion in Canada, or really any illegal act done by the corporation. – Elie 13 years ago
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Thank you, but shouldn't there be some assets that can't be used in a suit. I mean I separate work and personal life, do legal suits have any limits? or are the assets up for grabs? – Justin 13 years ago
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Any damages due will come from your assets. If you have a sufficient volume and diversity of assets then you can choose where to derive the equivalent value in damages to pay the plaintiff unless damages call for a specific, non-convertible asset (like software/IP that belongs to them -- though in some cases you can still pay them with a hefty cash equivalent post-valuation). If you don't have sufficient assets, you'll have to give what you have. Again, doing business as a sole proprietorship is subject to unlimited liability. – Henry The Hengineer 13 years ago
Keep in mind that even setting up an LLC or corporation isn't necessarily the way to get certain protection.
To protect yourself, form an LLC or a corporation AND:
- Do not use the entity intentionally to do wrong to people
- Follow corporate formalities--keep good records of your business
- Adequately capitalize the entity
Google "pierce the corporate veil" and there will be more articles on this.
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Well no one, should, intentionally mean to do wrong to people anyway. Its not good business. I'll take a look at the Google search. – Justin 13 years ago
