Quiz 31: Starting a Business: Llcs and Other Options
For the delicatessen named as Maven's Court, a sole-proprietorship was not applicable as Alan Dershowitz had started it with other lawyers to open it, that is, there were more than one owner for the same. Forming a partnership firm was also not correct as in a partnership firm every partner is personally liable for the debts of the enterprise, which would not be a good way too for Alan. Either Limited Liability Company (LLC) or a S (Statutory) Corporation would be a better choice for Maven's Court. If Maven's Court was formed as a S Corporation, there would be limited liability for the owners and there would not be any double taxation unlike now. And just like the S Corporation, in LLC, the members are not personally liable for the debts of the company and the same is not a taxable entity as well.
In order to pierce the veil of an LLC and hold an individual member personally liable for the debt of the LLC, the following must have to be proven: • That specific member controlled the LLC. • The member engaged in improper conduct and • As a result of that improper conduct, the plaintiff was unable to collect on the debt against the LLC. If Blum was the only member of the LLC or if he was in control of the LLC, he would be personally liable for the debt. Blum's personal conduct harmed others, specifically Louis Anthony, Sr. and also may have breached his duties to the LLC by acting negligently. Normally, this is the kind of stuff LLCs purchase insurance for, but if the LLC has no insurance, Blum or any individual member of an LLC who acts similarly could be held personally liable.
Sole proprietorship: Sole proprietorship is an "unincorporated business" run by an individual. For a sole proprietor, filing a tax return and registering with secretary of state are not a mandate. There is no need to issue and sell stock. The sole proprietor liability is unlimited. Hence, option (a), (c), (d), and (e) are incorrect. Sole proprietorship does not have formal steps for creating. An individual may start the business with his own or borrowed capital. There is no limit for the capital that he/she invested in business. Hence, the correct answer is option .