The Risk of Losing It All

The Risk of Losing It All

In the times, when some businesses may get even sued by someone that was just careless using a provided product, companies have to protect themselves against possible lawsuits. The lawsuit against McDonald’s for offering a coffee that was too hot and caused burns of the woman that spilled it are not very common (Bertram, 2013). However, the lawsuits for the breach of the contract are definitely more popular; a simple Google search brings up 1.5 million results, including news, articles and court cases. Any business that is starting up or one that has already been firmly established in the market, either a small family-owned business or a large corporation is at risk of being sued for a breach of the contract. Any judgment against the business will obviously have a certain financial impact, however depending on the type of the organization, the risk of loss of the personal assets may be mitigated.

In the particular case of contract breach lawsuit, the risk of personal assets loss varies by situation and how the particular organization is structured. Table 1 presents a matrix of the personal liability exposure.

Table 1. Personal liability exposure.

Organization Personal liability exposure

Tinker’s Home Security Service (sole proprietorship) The liability exposure is very high. The most predominant feature of a sole proprietorship is the unlimited personal liability. That means that every single debt of the business is also considered a personal debt of the owner (Seaquist, 2012). In the unfortunate event of business not being successful, not only the initial investment might be lost, but also personal assets can be taken by the debt collectors (Seaquist, 2012).

Tinker & Tailor’s Home Security Service (general partnership) The exposure of the personal assets is high. The partners can be sued as a group or individually. In addition, the debtor can sue one partner individually, however he or she can seek a reimbursement of the paid...