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.
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.
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.