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Mark and Programmer are still open to liability on "back end". Without realizing it, each trusts other to properly run their independent businesses. Why is this?
Assume that Mark and Programmer follow above plan and business is very profitable. One day, Programmer is served with a lawsuit claiming that he violated copyright laws with a program that he developed before meeting Mark. The nine companies to which he sold program also sue him. The trial goes badly and Programmer is found liable to tune of $750,000.
Guess what happens next? Since he is a sole proprietor, Programmer's interest in joint business with Mark is seized to satisfy judgment. Alternatively, he files personal bankruptcy. Either way, Mark is involuntarily going to have a new business partner that probably canít program! In short, we are talking about a disaster.
How To Protect Yourself
Business entities are key to limiting your exposure to liability. In above situation, Mark and Programmer should own joint company as individuals, but they should form business entities for their personal businesses. If personal businesses are sued, their individual ownership of joint venture entity is shielded from attachment.
As a general rule, you should form an individual business entity for each business you own. By doing so, you are better able to limit potential damage of a lawsuit involving one of businesses.
Richard Chapo is with SanDiegoBusinessLawFirm.com - Go to our article section to read more business law articles.