Llcs and Partnerships

Limited Liability Corporation and Partnerships

Businesses form every day, and usually start out as sole proprietorships or loosely formed partnerships. As the business solidifies and expands, often consideration whether the business will continue with its default definition, or seek legal declaration of its structure and the owners’ liabilties. To declare a businesses a corporation, partnership, or some other hybrid helps to not only clarify liability issues but also taxation classifications as well. In the following discussion of entity types, the focus will be on exposure to liability and what protection limited liability corporations and limited liability partnerships offer.

Owners of general partnerships, joint ventures and sole proprietorships are personally responsible for the debts incurred by their business. The law traditionally does not treat these businesses as distinct from their owners. Since the 1990s, there has been a significant expansion in the types of limited liability business entities, providing owners with more options that keep their liability limited to “an amount equivalent to the investment made by the investor” (Limited Liability Entities, p. 155). These types of entities include corporations, limited liability partnerships, limited liability companies, and a host of other hybrid business types.

Limited Liability Corporations

Long the preferred limited liability business enterprise entity, a corporation exists separate from its owners and investors and is liable for its own contracts. Corporations can also sue or be sued, can own property, and exist in perpetuity because owners and investors can change. A corporation is formed when the principals complete and file documents knowns as articles of incorporation and pay fees to the proper authority. In most states, this authority is the secretary of state.

Corporations, although not the dominant form of business by percentage, are behemoths in regard to receipts and...