Although you can buy insurance to reduce this risk, one of the reasons people incorporate is to avoid personal liability for actions done by partners. This is particularly true of businesses that generate lots of tax losses in their early years. If the business could be structured as a partnership, the partners would be able to use the losses to reduce taxes on other income they earn. This is not possible with a corporation. The solution to the liability dilemma was the creation of limited partnerships.
Limited partnerships have two classes of partners.
And there's usually only one general partner. Other hybrid forms of business exist that are similar in concept to the limited partnership but with differing details. These include S corporations . The important thing to know here is that an S corporation is not a partnership.