Personal Financial Risks

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Question 1: Earlier this month another oil company closed its doors "leaving more than $80 million in estimated costs to clean up its remaining wells, pipelines and facilities."

Do you agree with the corporate structure which shields the individual from the personal financial risks associated with business? Consider you position to its logical end. Defend your position.

Answer: I agree with the statement, we know the fact that business and business person is different. While analyzing the different accounting principles we can understand that company act as artificial person and shareholders and directors are not liable for the corporate liability. Business organizations are responsible for its debts and not people. As per the report of Business Insider (2016) in some instances the directors are liable for paying the tax liability of the organization. In some extreme cases the court also forcing the companies to pay the liabilities of the organization. While analyzing the case of Salomon & Co Ltd [1897] AC 2 we can understand that the company has the legal capacity and it has to manage the debts and other related liabilities.

While analyzing the Walker v Winborne (1976) we can understand that the court considered company as a separate and independent legal entity. It is the duty of the managers and directors to create effective ways for managing the issues faced by the company. If they are not doing it, it will affect the entire operations of the company (Watson et al 2019). The concept separate legal entity provides a shelter to the directors and managers for avoiding the personal financial risks associated with the business.

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Shareholders are investing in the company for getting better returns and the managers has to implement effective ways for protecting the rights of the shareholders. It is easy for the people to create a company, but it is not easy for the people for managing the corporate liabilities and debts. In most of the cases corporate structure is actually shielding the individual from the personal financial risks associated with business. While analsying the court decision in the Salomon & Co Ltd [1897] AC 2 and Walker v Winborne (1976) entire law system supporting directors and owners for paying the debts of business organization.

Question 2: Discussion: "Whether agree with the corporate system which shields the individual from the personal financial risk?"

Answer: Preface: In recent times there are several instances of oil companies just leaving used oil wells and other infrastructure getting just fold out. The company once after getting folded out is leaving the expenses of cleaning of the wells, pipelines and other facilities to the government and to the tax payer finally. It is not a welcome development; this shows the low morale and ethics of the companies. The expenses that Houston Calgary oil patch Company left for cleaning is about $80 million at present (Bakx, 2019). The following part of the discussion is about the legal perspectives in this perspective.

Background: Corporation is a separate legal entity, it is very much liable for the debts and it can not at all transfer the burden of its business nor the debts to the other persons either benefitting or related in some other forms to the business of the corporation. The personnel of the organization are very limitedly liable for such corporate liability however still in essence it is the corporate that is mainly responsible for the activities it has involved in, as part of the business progression. Officers, directors and shareholders do possess very limited liability in the entire process.

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Stand(opinion): There are several instances where in such corporate structure with inherent shielding of the personnel from the financial risk has helped the organizations to collect the necessary capital funding in less time. The very essence of the corporate structure and the formulation of the all corporate law is to make the corporate entity as a different legal entity during the operation of which the personnel of the organization will be shielded from the financial risks and they will not be facing due to bankruptcy if happen. The very fact that the personal properties and assets of the personnel will not be at risk is making these corporate to survive. However still it is true that this advantage is making the organization to go for bankruptcy and transferring the burdens and the risk to the creditors and the society. Though it is not a positive development, the flexibility of the corporate system and the shielding it offers to the investor and their personal properties is promoting the business in this arena.

Reasoning and Justification: There is structure guided by corporate law and the federal regulations, which will monitor the system and will keep it on track at all times. Directors and other members do have their own obligations at different times towards the organization and they need to do all that is necessary to stop the bankruptcy and to keep the organization functioning. Federal government also does have provisions to protect the organization moving for bankruptcy. Hence though it is pinching, it is to be accepted that the corporate structure is prepared to protect and shield the shareholders from the financial risks. Hence I believe it need to be same, rather the federal government can make more stringent corporate formalities(Gordon 2018) to make the system healthy and can pierce the corporate veil to make the personnel responsible only if the formalities are not followed. In other cases, like in the specific oil and gas pipeline cleaning case, government can think of alternative ways like mandatory insuring to avoid such problems.

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