Intro to Paralegal Studies Practice

What legal entity often has its owners protected from personal liability for business debts?

1. Sole proprietorship

2. Partnership

3. Corporation

4. Limited liability partnership

The correct answer is: Limited liability partnership

The correct choice highlights the structure of a Limited Liability Partnership (LLP), which is designed to protect its owners—referred to as partners—against personal liability for business debts and obligations. In an LLP, partners enjoy limited liability, meaning that they are not personally responsible for the debts incurred by the partnership or acts of other partners. This structure effectively shields personal assets from being used to satisfy business debts, making it an attractive option for professionals, such as lawyers or accountants, who want to limit their risk while still benefiting from the collaborative advantages of partnership. In contrast, sole proprietorships and general partnerships do not offer such protection; the owners are personally liable for all debts and obligations incurred by the business. A corporation also provides limited liability, but it is a distinct legal entity that typically entails more formalities and regulations than an LLP. Therefore, the limited liability offered in a limited liability partnership specifically addresses the concern of personal liability for business debts, which makes this choice the most appropriate in the context of the question.