Question

Which of the following forms of organization is most likely to protect the personal assets of a partner or shareholder who has not been involved in an engagement resulting in litigation?

Option 1: Sole Proprietorship
Option 2: Limited Liability Company (LLC)
Option 3: General Partnership
Option 4: Corporation

Answer 1

An LLC and a corporation protect personal assets from business liabilities, while sole proprietorships and general partnerships do not provide such protection.

Step-by-step explanation:

In the context of business structures and personal assets protection during litigation, a Limited Liability Company (LLC) stands out as the organization that most likely provides this security to its members. Unlike a sole proprietorship or general partnership, which offers no shield for personal assets, an LLC offers a limited liability feature.

This means that LLC members are typically not personally responsible for business debts or liabilities incurred by the company, thereby protecting their personal assets like homes, cars, or personal bank accounts.

Similarly, a corporation also provides a clear separation between the business and its owners, shielding the shareholders' personal assets from the company's liabilities. In contrast, a sole proprietorship or a general partnership does not offer these protections, making owners personally liable for business obligations.