A business owner who forms an LLC or corporation has limited personal liability in the business. This means that if someone were to sue the business, the individual suing could only recover against the business assets, not the owner’s personal assets. This is the primary reason why forming an LLC or incorporating a business is recommended.
If you have not formally designated your business type, you are by default a sole proprietorship (if there is only one owner) or a partnership (if there is more than one owner). Businesses that are partnerships or sole proprietorships do not have this limited liability regarding the business owner’s personal assets.
If there is a partnership, all partners are liable for the actions of each partner. Further, each partner can bind the company by his or her actions. This creates a significant amount of risk for each owner of the partnership.
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