Memo to Gloria Smithson (Coursework Sample)

Memo to Gloria Smithson
Following the American Psychological Association Guidelines
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Memo to Gloria Smithson
To : Gloria Smithson
From:
Date: 22 September 2014
Subject: Business formations that offer personal liability protection
In the preliminaries of building a business, often there are many pronouncements to make; the people to hire, business location, locating the customers and at what point one should start. Consequently, the vital aspect often disregarded on the decisions made is how proprietors can protect themselves from personal liabilities. Making a choice to go into business may involves quite a number of risks, fortunately some of these risks can easily be circumvented, or at least lessened. (Arthur &Sheffrin 2003). Arguably, one of the most efficient models that may help you protect yourself and your family from personal liability as a result of your business activities is to select the right business formation on which to register your business under. The write one would ensure that every liability starts and ends with the business without necessarily bringing your family and you into the matter.
Gloria, in this memo, I can elaborate on three most relevant formations you may wish to choose from. These are more to your desire for protection from personal liabilities. The three basic choices for formation of a business here may incorporate options such as
* Limited Liability Partnership
* Corporation
* Limited liability companies
To give you a clearer insight of the types of formations above, we may describe them further in details as given below.
Limited Liability Partnership
This is characterized by a requirement of not less than one general partner and at least one limited partnership. To appropriately start up a business entity of this type, it is mandatory to register and fill some documentation with the secretary of state.
An enterprise involving Limited Partnership is basically best used when somebody anticipates to be either a "silent partner" or the "money man". Only one partner who is the general partner takes charge of the daily running and management of the business, he or she remains personally liable.
On the opposite edge is the limited partner who cannot take part in daily running of the entity, he or she is not obligated or subject to personal liability for partnership debts. In this arrangement, if you are the limited partner, you may lose your protection against personal liability if you begin to take part in the management of the business. In the case you do, you lose your status as a limited partner an become a general partner, in such a situation, you exposes your family and yourself to personal liability.
Corporation
Formation of a corporation arguably offers personal liability protection for every of its stakeholders. Conversely, if certain procedures are not observed, the protection could easily be lost. In formation of a corporation, there is the corporate structure which presented in a simple model involve:
* Stakeholders own the business
* Stakeholders elect a board of directors to watch over the long term objectives
* Directors in turn appoint the personnel who run the daily undertakings
In a number of small businesses the stakeholder may also be a director and an officer. Very often some of them are also employees of the enterprise. However, the law compliments the diverse capacities, even in the case that the same individual take up all the three positions.
The key protective factor here is the fact that the corporation stands as a distinct and unconnected unit from its stakeholders. This distinction is key as it is the major aspect that offers the protection to you in terms of personal liability. In this arrangement, the corporation could be liable for given corporate debts and liabilities, the stakeholders are not.
Unluckily, the protection that may be provided for given the formation of corporation is not all perfect. This may be given away, withdrawn or may at some circumstance not apply. For example, if your corporation pays your personal expenditures, or corporate finances and your personal finances are banked in similar account, the corporate protection may often be revoked.
Alternatively, a corporate proprietor may be obligated to sign a personal guarantee, this is meant to enter a tenancy or purchase contract. In such cases, you as the proprietor is seen to give way your corporate protection (Hamilton, 1995).
In conclusion, corporations are run characteristically by individuals, every person is prone to committing wrongful doings. If you involved in the corporation as a worker perform a wrongful doing, you will be responsible for that given damage on personal grounds. Conversely, if your employee is involved in a wrongful act, you remain in general protected from any personal liability. Even though not often perfect, corporate units afford one of the finest heights of protection to the business proprietor.
Limited liability companies
A Limited liability company by large delivers similar liability protection as that of a corporation. The key distinction is that it may have dissimilar tax consequences. It is frequently regarded that an LLC has more flexibility compared to a corporation. Although there exists some actuality in this declaration, the flexibil...