Business Fraud and Liability
When starting a new business, it is always best to consider the worst-case scenario in advance so that you can ensure that you are prepared for whatever may happen with your new enterprise. While business fraud is an unsavory topic that many honest businesspeople don’t want to discuss, an accusation against you or a partner could have major consequences for both your business and your own assets. Knowing how liability is legally distributed within your business can help you to understand how you and your business would be affected by a claim of fraud.
Limited Liability Protection
Some traditional business entities offer very little liability protection to owners. For example, sole proprietorships and partnerships do not provide owners with limited liability; if the business cannot pay its debts, then the owners may be required to use their own personal assets to settle the balance. Additionally, under these business structures one partner or owner is liable for the actions and decisions of all other partners or owners in the business. Even if a partner loses money or commits fraud without the others’ knowledge, the other owners may be held financially liable, putting their personal finances at risk.
Under some business structures such as corporations and LLCs, owners are given limited liability, meaning that their personal assets are not put at risk if the company fails. However, this type of liability protection does not apply when the business acts outside of legal bounds. When the company or the owner(s) are suspected of fraud or another crime, the owners’ personal assets may still be at risk. However, if it can be proven that a single owner or partner acted alone in the commission of fraud, the other owners may be able to uphold their status of limited liability.
Contact Us
To learn more about limited liability and your business, contact the Texas business formation experts of Texas Legal Entities today at 512-471-2431.
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