Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jan 28, 2009

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The legal structure of your business is extremely important. State law enables you to create a legal entity – a separate “identity” from your own person – under which you can transact business, without the risk of exposing your assets to any personal liability that might arise out of your business affairs.

Sole proprietorship affords the least amount of asset protection. Anything you or your employees do in a business that is a sole proprietorship exposes your assets.

In terms of asset protection, being a general partner can be even worse. Anything that one partner, or any employee, does in the course of the business affects all of the partners, because each partner of the of a general partnership is personally responsible for all obligations of the partnership.

To avoid risking personal liability for activities arising out of business, you need to consider other available forms of business organization which provide greater protection. Changing the form of business ownership will involve some legal work, documentation, filings with various government agencies, and have some tax impacts. They should be discussed with an attorney.

Some of the more common forms of business ownership which reduce personal liability are discussed in the sections on Corporations and Partnerships.