Owning a share in a business can be financially and personally rewarding. Unfortunately, there are also significant risks associated with making an investment in a business. Owners not only make a profit when a company is profitable and lose value in their investment when a company fails to make income, but owners can also become personally responsible if something goes wrong with the company. This means that if a business is sued, the owner of the company could find himself at risk of losing his house, his personal savings and other things he owns outside of the business.
Many people do not want to take this type of risk. Fortunately, there are a variety of different business structures that can shield owners of a professional enterprise from liability. Because there are major differences in liability protection for Corporations, Joint Ventures, Limited Liability Companies, Limited Liability Partnerships and Partnerships, those who are considering starting or investing in a business should speak with an experienced Scottsdale business law attorney for help choosing the best structure for their organization. Lotzar Law Firm, P.C. has helped many startups and has also assisted organizations in restructuring to a different organizational form that provides greater liability protection. Call today to schedule a consultation and learn more about how we can help you.
Differences in Liability Protection for Corporations & Other Business Structures
An owner could potentially become liable if a business that he has invested in has been sued. This means if creditors seek a Judgment against the business for non payment, the owner could have to pay. In addition, if a customer or an employee sues the company under Tort Law and the defendant organization is found liable, the owners could face the loss of their personal assets to satisfy the Judgment against the business.
Whether or not an owner faces personal liability depends upon how a business is organized. For example:
- Corporations provide protection from liability. Owners are not going to be at risk of losing any personal assets for business debts or Judgments, as long as the Corporation actually operated as a separate business. This means Corporate Formalities like keeping money separate and having Annual Meetings must have been followed.
- Limited Liability Companies provide protection from liability for co-owners. All requirements for ownership in an LLC must have been met.
- Limited Liability Partnerships shield some partners from personal liability. There must be at least one General Partner actively involved with the day-to-day operations of an LLP. That partner is personally liable. Partners who are investors only and not actively involved in business operations are protected from personal liability in an LLP.
- Partnerships do not provide protection to partners. Each partner can be held responsible for a Judgment against the Corporation and made to pay some or part of the money.
- Sole Proprietorships provide no protection to individual business owners from liability. If the business is sued, the owner is sued.
Choosing the right business form is essential in order to protect yourself from liability when owning or investing in a business. The Scottsdale Arizona business law attorneys can provide legal assistance in the process of starting a business, determining the right organizational form and completing all legal requirements for incorporating or forming an LLP, LLC or Partnership. Call today to schedule a consultation and learn more.
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