What form of ownership should be used in this scenario?  Jill Munoz opened an aerobics and fitness center business in a town with a population of 50,000 people three months ago. She is the only...

What form of ownership should be used in this scenario?

 

Jill Munoz opened an aerobics and fitness center business in a town with a population of 50,000 people three months ago. She is the only owner and has 6 employees. The business is doing well and adding memberships weekly. Last month a member injured themselves on a piece of training equipment and threatened to sue the business for not providing appropriate operating instructions. This event has Jill concerned and exploring what options she has to deal with this type of liability in the future. Jill has no interest in selling stock in her company to raise capital.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

In this scenario, Munoz's main worry is with liability.  Because of this, she should incorporate her business.  The most significant benefit of incorporating a business is the fact that it shelters the owner or owners of the corporation from liability for debts that the firm incurs.  If Munoz's gym were to be sued for an injury suffered by a member, Munoz herself could lose all of her assets.  If she were to incorporate, her personal assets would not be threatened by such a law suit.

The fact that Munoz does not wish to sell stock is not an issue.  Not all corporations sell stock and she is under no obligation to do so.  She can keep complete control of the company but reduce her liability.  Therefore, she should incorporate.

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