Which Business Structures Offer Limited Liability?

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The way you want to structure your Tennessee business is one of the most fundamental decisions you must make during the initial process. According to the Small Business Administration, the decision you make in this regard will have an effect on many factors related to the way you start up and run your business.

One of the most important considerations is whether or not the business structure you choose offers you limited liability. If it does not, then you may have to use personal assets to pay your business debts. Limited liability is not a priority for every business owner, as entities that offer it are more expensive and complicated to set up. However, if it is something that you feel strongly about, you should know ahead of time which business structures provide it and which do not.

Always provide limited liability

For some business structures, limited liability is built right into their very fabric. An obvious example is the LLC, which stands for “limited liability company.” Another example is a corporation. There are several different types of corporations, and they vary in their transparency, accountability, purpose and taxation. However, each prevents its owners from becoming personally liable for business debts and obligations.

Sometimes provide limited liability

There are different types of partnerships; some offer limited liability and some do not. A general partnership does not offer limited liability, so it can be risky to set up. A limited liability partnership, as implied by the name, provides protection to the personal assets of each co-owner. In a limited partnership, most of the partners have limited liability, but one general partner does not. Because the names of the different types of partnerships are similar, it is important that all partners understand the differences and agree to the same type of partnership.

Never provides limited liability

A sole proprietorship does not provide limited liability. This makes it easier to set up and pay taxes, but it also means that you bear all the responsibility for any debts incurred by the business. It also means that you have no protection for your personal assets. If you start a sole proprietorship but decide later that you want limited liability, it is usually possible to convert your business to another structure.

The information in this article is not intended as legal advice but provided for educational purposes only.

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