Getting a New Business off the Ground - Essay Example

1. Under a sole proprietorship, Joan is inseparable from the business. Because Joan and her business are a single entity, she has complete control over the business operations, which includes a financial and legal responsibility for all of its debts and obligations. As a very “hands-on” manager, this may fit Joan’s leadership style, insofar as Joan will have complete control over every aspect of her business under the sole proprietorship model. If Joan becomes unable, due to health or personal reasons, to operate the business with such a high level of involvement, her choice in a sole proprietorship could become a disadvantage (Mauro, 2004).

Additionally, since there is a potential for product liability for Joan in the aviation parts industry, Joan is legally responsible for any damages her defective products may cause. As a sole proprietorship, she absorbs these responsibilities personally, which could pose a large problem should a case arise where she is blamed for her product’s malfunction.For tax purposes, the tax rate imposed on Joan’s business is determined by the personal income tax rate of the owner. So, the sole proprietor of a business does not pay taxes apart from, or separate from, the owner.

As such, this tax benefit forms one advantage of operating the business as a sole proprietor (Mauro, 2004).2. To protect her client from liabilities incurred by the business, Joan’s attorney might recommend a limited liability company (or LLC). The LLC model shields Joan from any blame incurred by the business. So, if some product she manufactures malfunctions on a plane, she cannot be held personally responsible for those who suffer from the malfunction; in that case, it is just the company that is financially and legally responsible for the error.

Her attorney may also suggest a corporation, which is a legal entity with its own liabilities and privileges separate from those of its members. A corporation may make more sense than a limited liability company if Joan hopes to expand her business to a larger scale, and if she can persuade investors to help grow her base of business. Like a LLC, a corporation shields Joan from the company’s liabilities and debts (Moye, 2004).3. Her attorney may suggest liability insurance, which is an insurance system that can protect Joan from the risks of liabilities imposed by lawsuits.

If Joan’s company were to be accused of negligence or error in manufacturing its aviation parts and brought to court in a civil suit, Joan’s liability insurance would protect her should she be accused of wrongdoing covered under the terms of the insurance policy (Davis, 2006). The insurance company would collect a premium from Joan’s company in exchange for a specific protection. Thus, even if Joan’s company is found guilty of wrongdoing in a lawsuit, her liability is transferred to the company through which she bought an insurance policy.

The attorney may also suggest to his client that when she reaches agreements with airline manufacturers to sell her products, she explicitly states in her contracts that she is not liable for the products after they have been installed in the airplane. Thus, if an airplane built with her products crashes, even if it crashes because of a faulty part manufactured at her plant, the contract places all liability on the manufacturer that built and assembled the whole airplane. In this case, Joan would be protected from product liability should she be brought to court.

Works CitedDavis, M. (2006). Liability Insurance Definition. Retrieved 2010, from Investopedia: http://www.investopedia.com/terms/l/liability_insurance.aspMauro, M. A. (2004). Sole Proprietorship. Retrieved 2010, from Iowa Secretary of State: http://www.sos.state.ia.us/business/sole.htmlMoye, J. (2004). The Law of Business Organizations (6th ed.). New York: Delmar Cengage Learning.