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Management vs Lawyers: Deciding on Type of Entity

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Why is it valuable to have a legally astute management team making the decision about the choice of business entity, rather than leaving these decisions to the lawyers?

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It is valuable to have a legally astute management team making the decision about the choice of business entity, because this team is more likely to understand their needs. Business entities differ in many ways, including personal liability, difficulty to set up, ease of ownership transfer, ...

Solution Summary

This solution discusses why it is important to have a legally astute management team making the decision about the choice of business entity, rather than leaving these decisions to the lawyers. Includes helpful link.

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Joan has always been a "hands-on" manager, a businessperson who becomes involved in all aspects of an operation. She is starting her own company, which will manufacture parts for the private aviation

Consider the following scenario:

Joan has always been a "hands-on" manager, a businessperson who becomes involved in all aspects of an operation. She is starting her own company, which will manufacture parts for the private aviation industry. There is some potential for product liability in this line of business. Joan consults an attorney to decide upon the kind of business entity to form, so she has freedom in exercising management control and she is protected to the greatest extent available from product liability lawsuits.

Assuming Joan will be the sole owner of the business, what would be the advantage of operating her new firm as a sole proprietorship? What would be the disadvantages, if any?
To protect Joan from personal liability, what business form or forms may her attorney recommend? Why?
Besides recommending a certain business structure, what other steps might the attorney suggest to Joan to help protect her from losses due to product liability?

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