Business organizations are made up by state law. In Texas, there are numerous types of business entities that the law allows. For instance, there are sole proprietorships, partnerships, corporations, and limited liability companies. Additionally, there are subcategories of partnerships and corporations, such as limited liability companies and professional corporations. This can all be very confusing and it can all have a direct effect on your personal injury claim in several ways.
While insurance policies can be written to cover any type of entity, the issue of what legal liability an owner may have is an extremely important question. That is, what and who is legally responsible for paying any damages that you may have.
When navigating personal injury claims involving business entities, it is essential to comprehend the legal structures that govern them. In Texas, business organizations are established based on state laws, encompassing a range of entities like sole proprietorships, partnerships, corporations, and limited liability companies. Furthermore, these entities have subcategories such as limited liability partnerships and professional corporations, each carrying distinct implications for personal injury claims.
The crux of the matter lies in determining the legal liability of business owners. Identifying who bears responsibility for covering damages resulting from personal injury incidents is crucial. While insurance policies can be customized to suit different entity types, unraveling the intricacies of legal accountability is paramount for successfully pursuing and resolving personal injury claims involving business entities. Understanding these complexities is pivotal in ensuring that you receive fair compensation for any harm suffered.
Sole Proprietorships
Let’s start with the simplest business entity, sole proprietorships. In a sole proprietorship, the owner is the business. Sole proprietorships exist when the owner does not create a separate business organization. Sometimes owners will file assumed name certificate with local government entities in order to do business under a different name. An example of this would be Bob Smith d/b/a Bob’s Handyman. In this case, legally there is no difference between Bob Smith and Bob’s Handyman.
In the case of a sole proprietorship, the owner is completely liable for all damages. That is, there is no protection for the individual owner for liability claims against the business because the owner is the business.
When delving into the realm of business entities, it’s crucial to understand the intricacies of sole proprietorships, which represent the most straightforward form of business ownership. In a sole proprietorship, the owner and the business are essentially one and the same. Unlike other business structures, a sole proprietorship does not involve the creation of a separate legal entity apart from the owner.
Owners of sole proprietorships may opt to file an assumed name certificate with local governmental bodies to operate under a different business name. For instance, an individual named Bob Smith could register as “Bob’s Handyman.” Legally, however, there remains no distinction between Bob Smith and his business entity, Bob’s Handyman.
In the context of a sole proprietorship, the owner assumes full liability for all damages incurred by the business. This means that there is no inherent protection for the individual owner against liability claims aimed at the business. Since the owner is inseparable from the business in a sole proprietorship, any legal actions or claims against the business are essentially directed at the owner personally. It is essential for individuals operating as sole proprietors to be aware of this direct link between themselves and their businesses, as it underscores the extent of personal responsibility and liability they bear within this business structure.
In a sole proprietorship, the owner and the business are considered as one entity. This means that the owner is personally responsible for all aspects of the business, including any liabilities or debts incurred. Unlike other business structures that separate the business from the owner, in a sole proprietorship, there is no legal distinction between the individual and the business itself.
Owners of sole proprietorships may choose to operate under a different name by filing an assumed name certificate with local authorities. For example, an individual named Bob Smith could conduct business as “Bob’s Handyman.” However, legally, Bob Smith and Bob’s Handyman are viewed as the same entity.
Since the owner is directly responsible for the business in a sole proprietorship, any liabilities or damages incurred by the business are the owner’s personal liabilities. This lack of separation between the owner and the business means that the owner has no protection from legal claims or liabilities against the business. It is essential for sole proprietors to understand this direct link and the personal liability it entails when operating under this business structure.
Partnerships
One step above sole proprietorships is partnerships. Generally, a partnership is an agreement between two or more people to carry on a business as co-owners. There are several types of partnerships. In the simplest form, Bob Smith of Bob’s Handyman brings on Randy Travis as a partner. This can be a simple arrangement wherein Bob and Randy file the appropriate document with their local county clerk.
These types of simple general partnership, however, don’t give owners protection from liability. Bob and Randy are still liable for any damages that they may cause in a personal injury claim.
More sophisticated types of partnerships – such as limited partnership and limited liability partnerships – do provide for liability protection to certain classes of owners. However, a person injured through the negligent acts of the partnership may still be able to collect as a creditor from the assets of the partnership and the partnership’s general partners.
Corporations and Limited Liability Companies
Finally, corporations and limited liability companies are purely statutory creations. A corporation is a legal entity formed by statute in which the corporation is separate from the shareholders. A limited liability company like a corporation is a statutory creation in which the owners (members) are separate from the company. For instance, Bob and Randy can incorporate (or create a limited liability company) named Bob’s Handyman. In this case, Bob and Randy as shareholder/members of the corporation/limited liability company are separate from the actual company, Bob’s Handyman.
Corporations and limited liabilities provide owners the almost complete protection from liabilities stemming from personal injuries. Only in very limited instances will a court pierce the corporate veil and allow creditors to recover from owners. However, a creditor from a personal injury claim can still recover from the assets of the corporation/company.
