Sansa is an entrepreneur and is looking to start her own business. Her sister is

Question

Sansa is an entrepreneur and is looking to start her own business. Her sister is interested in investing in the business with Sansa, but Sansa’s sister is concerned about being personally liable if the business does not do well. Sansa also would like to limit her sister’s personal liability. Which business forms should Sansa and her sister consider to limit their personal liability (for both of them!)? Discuss one disadvantage of each of the business forms you are suggesting for Sansa and her sister.

Explanation / Answer

They can consider having a limited liability partnership (LLP) type of a business. In these kind of business, one of the partners can have a limited liability while the other one may have a relatively higher share of liability. So if the business goes bankrupt , the liability of Sansa's sister will be limited to a agreed upon amount only.
One disadvantage is that the limited partner may not have much say in the business and hence key decisions of the business may rest with Sansa only.

Another structure they can look at is limited liability company (LLC). Under LLC, individual members cannot be held personally responsible for losses of the firm.One disadvantage is that an LLC may need to be dissolved upon death or bankruptcy of a member.

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