How is personal liability impacted by business formation?

In a sole proprietorship or general partnership, all of a person's personal assets (such as real estate, vehicles, personal property, and savings accounts) may be at risk if the business is sued. In a lawsuit, a person may seek money damages in a court action against you.

Under a limited liability company (LLC) or a corporate entity, your personal assets are shielded. This is called “limited liability.” If the LLC or corporation is properly maintained, then most personal assets are protected, even if there is an injury or other problem at the company that leads to a lawsuit. Limited liability protection extends to acts or omissions of a company's employees.

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