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Liability Issues - Limited Liability Company - Essay Example

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This paper "Liability Issues - Limited Liability Company" is based on a case analysis that is based on three friends who have graduated from the Computer Science Department of the Manchester Metropolitan University who desire to run a business that will buy and sell computers, computer software. …
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Liability Issues - Limited Liability Company
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Download file to see previous pages In this case, though, it appears that the “sole trader” concept is not appropriate for these three individuals. This is because the sole trader is an individual who sets up an entity. Thus, whatever entity they set up will not be a sole trader. Thus, it could either be a limited liability company or a business partnership.
A limited liability company is one in which the three individuals can form by pooling their resources in the form of acquiring shares in the company to be formed. The acquisition of shares creates a separate entity that will have a limited liability.
On the other hand, if the three individuals in question decide to form a partnership, they will be a collection of individual sole traders who will contribute their resources according to a ratio. Based on the ratio of contributions, they will bear responsibility for issues that come up and also get to split profits on the basis of the ratio. However, partnerships often do not have a limited liability.
The concept of “limited liability” is steeped in the idea that a firm is separated from its owners. This is steeped in the case of Salomon V Salomon (1897) in which a man created an entity with 20,007 shares. He took 20,001 shares and sold one share each to six of his family members. The business went into liquidation and the creditor sued for the recovery of money from the owner with 20,001 shares. The court held that once it was incorporated as a company, the liability was limited and the liability for issues and matters was only limited to the assets and shares owned by the business itself.
Based on this, it is deduced that a business that has a limited liability is separate and different from its owners (James and Tilley, 2009). In doing this business, there are risks and there is a possibility that the computers of the firm could encounter some forms of risks. In that case, there is the need to protect the entity from having its liability spread from the organisation they will form to the owners of the business.   ...Download file to see next pagesRead More
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