Owners of three types of businesses are not protected by the limited liability that other business forms offer. An owner of such a business is personally liable for the debts incurred by the business. These businesses include general partnerships, joint ventures, and sole proprietorships. General partnerships are formed when two or more agree to engage in a business for profit. A joint venture is similar to a general partnership, except that two or more people form a venture for a particular business project. A sole proprietorship is a business that is carried on by an individual.

The law traditionally has not treated these types of business as independent and distinct from the owners. Owners of these types of business also do not need to follow the formalities that owners of other forms of businesses, such as corporations, must follow. Moreover, these business entities generally are not governed as heavily by state and federal regulations. Thus, although limitations on liability provide considerable incentive to form a limited liability entity, other factors may lead business owners to form an entity that does not enjoy limited liability.