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Introduction to Business in A limited liability company

   

Added on  2021-04-19

8 Pages2049 Words56 Views
Running head: BUSINESS0Business
Introduction to Business in A limited liability company_1
BUSINESS1IntroductionA limited liability company or LLC is referred as a corporation in which the members areresponsible for its debts up to the amount of capital that they invest. In other words, memberscannot be held personally liable for debts or liabilities the company (Tricker, 2011). Thisessay will provide arguments against the statement that the ability to create an LLC leads toexcessive risk taking which negatively affects the society. In this context, excessive risk-taking means members of the company are more likely to take business risks that are not safefor the corporation or society in order to get substantial returns. The negative impact onsociety includes factors such as high risk of fraud by the members, high chance of losssuffered by shareholders, members are more likely to take rash business decisions, risk ofunethical behaviour of members, and others (Ireland, 2010). Society includes differentstakeholders that are directly affected by the actions of an LLC such as public, shareholders,employees, government, creditors, investors, and others. The ability to create an LLC did notencourage its members to take excessive risks that negatively affect society because variouslaws and moral values bind them. This essay will discuss the role of the doctrine of piercingthe corporate veil, moral values, stringent reporting, transparency, accounting requirementsand others to argue why the ability to create an LLC did not encourage members to takeexcessive risks.
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BUSINESS2Arguments (Against)A limited liability company is required to comply with a strict reporting system whichenforces its members to continuously submit company’s reports to government authoritieswhich reduces the risk of excessive risk-taking. In limited liability companies, members didnot have unlimited powers to do anything that they want in the firm. They are continuouslyunder pressure to submit different reports of the enterprise to various parties such asshareholders, government, and public which assist them in reviewing their work (Luchs, etal., 2010). For example, the key document of LLC includes its annual report which includescrucial data regarding the organisation. The annual report includes tax report, managementreport, directors’ report, franchise tax report, and others. It includes the statement of overallrevenue and operating expenditure of the enterprise that assists shareholders, government andpublic in evaluating the company’s annual performance (Lehavy, Li and Merkley, 2011). Thedirector report includes statements from the directors regarding the performance of theenterprise and the actions taken by them. Other than the annual report, LLCs submit variousother reports to its shareholders and government as well for ensuring that it complies withnecessary legal requirements. These reports enable shareholders, government and public toreview the work of members, and they can hold them accountable for their action. Therefore,due to the continuous scrutiny of their work, members did not take excessive risks that mightnegatively affect the society.The doctrine of “piercing of the corporate veil” enables the court to avoid the provision of theseparate legal entity and hold the company’s directors liable for their actions which ensurethat they did not take excessive risk-taking that can negatively affect the society. The piercingof the corporate veil is referred as a situation in which the court set aside the principle of theseparate legal entity. The provision was given in Salomon v A Salomon & Co Ltd case inwhich the court provided that a person operating a company cannot be held personally liablefor its liabilities (Lawson, 2015). The corporate veil protects members in an LLC, but thecourt uses doctrine of piercing the corporate veil to hold company’s members personallyresponsible for firm’s debts or liabilities (Macey and Mitts, 2014). Generally, courts have astrong presumption against the use of the doctrine of piercing of corporate veil and it is onlyapplied in case of serious misconduct. The provision of veil piercing was introduced becausedirectors misuse their power to take excessive risk in the company that negatively affect theinterest of shareholders, creditors and society. Directors often misuse their position since to
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