What can happen to an entrepreneur who is personally liable for the business? Ho

Question

What can happen to an entrepreneur who is personally liable for the business? How can an entrepreneur protect himself or herself from personal liability? In your response, differentiate among the the legal structures of a small business. Which structure would you recommend to a peer? Discuss the importance of contracts, intellectual property and how to manage risk. What can happen to an entrepreneur who is personally liable for the business? How can an entrepreneur protect himself or herself from personal liability? In your response, differentiate among the the legal structures of a small business. Which structure would you recommend to a peer? Discuss the importance of contracts, intellectual property and how to manage risk.

Explanation / Answer

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Answer:-
An entrepreneur who is personally liable for a business might face a lot of potential legal problems. This is because all liabilities of the business become the liability of the entrepreneur herself. So if the business defaults on a loan or if it suffers a business loss and is not able to pay to its suppliers, the entrepreneur can be held liable for this.
An entrepreneur can detach herself from personal liability giving the business an appropriate legal structure. Different types of legal structures of business include Sole proprietorship, Limited Liability Company, Corporation, Partnership, etc. In a sole proprietorship, the entrepreneur is personally liable for the business. A partnership is a business owned by two or more persons or entities. In a partnership, all partner needs to bear his share of losses or liabilities. The Limited Liability Company detaches the owners from liability as LLC is a legal entity on its own. A corporation is much larger and its owners are detached from liability as well. So an entrepreneur can build a corporation or a limited liability company to detach herself from liabilities.
I would recommend an LLC to a peer because of its tax efficiency, limited liability features. A corporation also provides such facilities, however, corporations are much larger and more complex to manage.
Contracts and intellectual property rights ensure the business contracts of the firm are adhered to by counterparties and the firm is compensated in case of any violations of agreements. Also, strong intellectual property rights ensure that the trademark, copyrights, patents, etc. of a firm are not used by other parties to make a profit. For example, corporations such as Apple of Google are subject to various intellectual property rights violations in which various third parties make a profit by using the copyrighted ideas or products of these companies. Strong contracts and intellectual property rights ensure that these firms can take legal action against such practices. In short, contracts and intellectual property rights are absolutely essential for the functioning of a capitalist society.
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