In selecting an appropriate type of business entity, Scott Law Firm recommends thorough discussion of the issues with an attorney and accountant. The liability consideration is the extent to which an owner may be personally liable for the debts and other obligations of the business.
Sole proprietors are personally liable for all debts of the business.
In general, partners in a general partnership also are personally liable for all debts and obligations of the partnership. Individual partners in a limited liability partnership are shielded from individual liability for partnership obligations that were caused by another partner's or employee's misconduct. However, a partner's liability is not limited for his or her own misconduct or for misconduct that took place under his or her supervision or control. The net income of a sole proprietorship is taxed on the sole proprietor's personal income tax return at the individual tax rates. Business loss is also reported on the sole proprietor's personal income tax return.