Which type of entity allows for greater liability protection for its owners compared to a Sole Proprietorship?

A Limited Liability Company (LLC) provides greater liability protection for its owners compared to a Sole Proprietorship. In a Sole Proprietorship, the owner is personally liable for all debts and obligations of the business, meaning their personal assets could be at risk if the business were to face lawsuits or financial difficulties. An LLC, on the other hand, is a separate legal entity that protects its owners—known as members—from personal liability. This means that the members' personal assets are typically safeguarded from business debts and legal claims against the LLC, allowing them to take on business risks without jeopardizing their personal financial security.

This structure encourages entrepreneurial activity, as individuals can engage in business pursuits without the same level of risk associated with personal liability that comes with a Sole Proprietorship. In contrast, other types of entities like a General Partnership also expose owners to personal liability, since partners are responsible for the actions of the partnership. An Independent Contractor operates similarly to a Sole Proprietor, facing the same risks without the protection of an LLC.