For many business owners, liability is one of the most important reasons – if not the primary reason – to form a legal entity in the first place.
Forming a legal entity offers a special perk that allows the owners to shield their personal assets, like their house and investments, from the liabilities of the business. That is, if the company is sued or has debts, and there’s not enough business insurance or money in the business account to cover it, then the owners will not have to pay out of their own pocket (assuming they didn’t do something that would cause a court to set aside that shield).
Owners of corporations and LLCs definitely get to enjoy this protection, but that’s not necessarily the case with partnerships. Usually, even with a limited partnership, there has to be at least one general partner who does not get the limited liability protection.
Some states, like Georgia, do offer certain partnership options that allow limited liability for all of the partners, but the problem is that not every state recognizes these types of partnerships – in fact, very few do.
So, before deciding to create a limited partnership, if the company will be operating in more than one state, a legal analysis should be done.
Got questions about which legal entity is right for your business? Give me a call, let’s talk about it.