of his or her investment. The general partner retains full liability as in any other partnership. In limited liability limited partnerships general partners will enjoy the same protections from liability enjoyed by limited partners or partners of an LLP. Corporation. The corporation is a separate legal entity, and in most cases is the entity that is liable for the debts of the business. The shareholders generally are exempt from personal liability for those debts and thus risk loss only up to the amount of their investment in the corporation. This is true for both C corporations and the S corporations. It should be noted, however, that in a small, closely held or newly created corporation without an established credit history, some or all of the shareholders may be expected to personally guarantee repayment of certain corporate debts as a condition of obtaining a loan or credit. Also, under certain circumstances such as fraud or personal wrongdoing, a court may “pierce” the liability shield and hold shareholders personally liable for wrongful acts. Finally, it is possible for courts to “disregard” the corporate entity and make shareholders liable under certain circumstances, especially where the corporation and the shareholders themselves have not respected the corporate entity by commingling corporate funds with those of other persons or having the corporation pay shareholder personal expenses out of corporate assets. Limited Liability Company. Liability of the owners of a Limited Liability Company generally is the same as for shareholders of a corporation; that is, absent fraud, personal wrongdoing or disregard of the entity, they generally are not held personally liable for the debts and obligations of the business. They therefore risk loss only up to the amount of their investment. As is the case for corporations, owners of small, closely held, or newly organized Limited Liability Companies may be required to give personal guarantees of repayment to secure financing or credit. No Liability Protection for Personal Act. It is important to note that no entity structure will insulate the owner from liability for his or her own personal acts. Personal Liability for Payment of Employment Taxes. To encourage prompt payment of withheld income and employment taxes, including Social Security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the TFRP (Trust Fund Recovery Penalty). These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount. In the event that an employer fails to pay its employment taxes, its individual officers, members, directors, owners or others, who are responsible for collecting or paying withheld income and employment taxes and willfully fail to collect or pay them may be held personally liable for unpaid taxes. See the IRS information, Employment Taxes and the Trust Fund Recovery Penalty (TFRP) . Distribution of Profits and Losses Sole Proprietorship . The sole proprietor receives all the profits from the business, and bears all the losses, which may exceed the proprietor’s investment in the business. Partnership. In the general partnership, the limited liability partnership, the limited liability limited partnership and the limited partnership, profits and losses are passed through to the partners as specified in the partnership agreement. If left unspecified, profits and losses are shared equally among the partners.
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