Limited liability is a legal status where business owners’ financial liability is capped at their investment amount if the business is sued or goes bankrupt. This protects owners’ personal assets from creditors’ claims if the business folds. Industries like insurance can benefit since potential losses are capped.
Business Structures with Limited Liability
Limited Liability Company (LLC)
A limited liability company (LLC) provides owners limited liability protection by being a separate legal entity from the owners. LLCs combine aspects of partnerships, sole proprietorships, and corporations.
Other Structures
Common business structures with limited liability include corporations, LLCs, and limited partnerships, where the organization is distinct from the owners, limiting their financial responsibility.
The Difference for Sole Proprietors and Partnerships
Conversely, sole proprietors and general partnerships have unlimited liability, meaning business debts can extend to personal assets.