What would your personal liability exposure be as a result of a lawsuit for breach of contract if you were a sole proprietor or in a general partnership?

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Karen P.L. Hardison eNotes educator| Certified Educator

The liability as the result of a lawsuit with an adverse decision against a sole proprietor and a general partnership is essentially the same though different in some particular detail.

As a sole proprietor, all property is considered personal property,. Thus the liability in an adverse lawsuit is high and involves the potential liquidation of all a sole proprietor's assets. The sole proprietor has unlimited liability.

It is similar for a general partnership in that the personal liability is high and involves the potential liquidation of all the general partners assets. The differences are that (1) the partners split the liability equally; (2) property may be held in the partnership name therefore the liability exhausts the partnership assets first; (3) after exhausting partnership property, lien(s) may be put on partner's personal assets to fulfill the liability.