In what type of ownership is an owner liable for debt but only based on how much they invested

This is a business run by one individual for their own benefit. It is the simplest form of business organization. Proprietorships have no existence apart from the owners. The liabilities associated with the business are the personal liabilities of the owner, and the business terminates upon the proprietor's death. The proprietor undertakes the risks of the business to the extent of their assets, whether used in the business or personally owned.

Single proprietors include professional people, service providers, and retailers who are "in business for themselves." Although a sole proprietorship is not a separate legal entity from its owner, it is a separate entity for accounting purposes. Financial activities of the business (e.g., receipt of fees) are maintained separately from the person's personal financial activities (e.g., house payment).

Partnerships–General and Limited

A general partnership is an agreement, expressed or implied, between two or more persons who join together to carry on a business venture for profit. Each partner contributes money, property, labor, or skill; each shares in the profits and losses of the business; and each has unlimited personal liability for the debts of the business.

Limited partnerships limit the personal liability of individual partners for the debts of the business according to the amount they have invested. Partners must file a certificate of limited partnership with state authorities.

Limited Liability Company (LLC)

An LLC is a hybrid between a partnership and a corporation. Members of an LLC have operational flexibility and income benefits similar to a partnership but also have limited liability exposure. While this seems very similar to a limited partnership, there are significant legal and statutory differences. Consultation with an attorney to determine the best entity is recommended.

Corporation

A corporation is a legal entity, operating under state law, whose scope of activity and name are restricted by its charter. Articles of incorporation must be filed with the state to establish a corporation. Stockholders' are protected from liability and those stockholders who are also employees may be able to take advantage of some tax-free benefits, such as health insurance. There is double taxation with a C corporation, first through taxes on profits and second on taxes on stockholder dividends (as capital gains).

Small Business Corporation (S-Corporation)

Subchapter S-corporations are special closed corporations (limits exist on the number of members) created to provide small corporations with a tax advantage, if IRS Code requirements are met. Corporate taxes are waived and reported by the owners on their individual federal income tax returns, avoiding the "double taxation" of regular corporations.

Advantages/Disadvantages

Sole Proprietorship

• Simplicity of organization-this is the most common form of business organization in the United States because it is the easiest and least expensive to establish.
• Minimum legal restriction-fewer reports have to be filed with government agencies. There are no charter restrictions on operations.
• Ease of discontinuance-the business can be terminated at the will of the owner.
• The owner is truly the boss, making all decisions, keeping all profits, and assuming responsibility for all losses and debts.
• Difficulty in raising capital-this can be a problem since an individual's resources are typically less than the pooled resources of partners.
• Limited life of the business-untimely, unanticipated, or unplanned removal of the proprietor from the operation of the business may have ramifications for creditors.
• Unlimited liability-this is by far the greatest disadvantage to the proprietorship. Even though proprietors may invest only part of their capital in the business, they remain personally liable to the full extent of their assets for the liabilities of the business.

Partnership

• Greater possible capital availability
• Greater resources for decision making, support, creative activity
• Unlimited liability in general partnerships
• Divided authority-having to divide the authority for making decisions among the partners can delay the decision-making process and occasionally lead to disagreement.

Limited Liability Company

• Allow greatest flexibility for customizing the structure of the business
• Limits member liability
• In many states, an LLC may have only one member (have the benefits of a sole proprietorhop but limits liability).
• Requires comprehensive operating agreement because of the high degree of variability/flexibility

Corporation/S-Corporation

• Limited liability to stockholders-liability is limited up to the amount invested personally in the business. In addition, personal assets may not be seized by creditors to satisfy debts (although now creditors often request personal guarantees on business loans).
• Perpetual life-the business continues as a legal entity. Shares in the corporation can be passed on to heirs.
• Ease of transferring ownership-stockholders can sell their shares when they desire, if there is a market.
• Ease of expansion of the company-greater capacity to raise capital by legal sale of stock.
• Government regulation-a corporate charter must be obtained from the state, and the corporation is subject to all state and record keeping regulations that pertain to corporations.
• Costs to organize a corporation are higher.
• Unless permission is obtained from other states, the corporate charter restricts operation to the state where it was issued.
• Double taxation feature unless S-Corporation election is made.

Unlimited liability means liability that’ s not capped by law or a contract. A single owner or joint owner of a company has unlimited liability when they are fully liable for all of the company’s financial and non-financial liabilities. A company’s liabilities may include, for instance, damages assessed against the firm in lawsuits or other litigations.

The qualifier "unlimited" refers to the limits between the business entity and its owners. When business owners have unlimited liability, they can be fully responsible for their company’s debts and other financial obligations and must cover for them from their personal assets

An example of unlimited liability is a business created by an individual. For instance, suppose that an entrepreneur creates a construction business. They set up their business as an individual so they and their company are legally the same. If the company gets into financial trouble and is unable to pay its debts, creditors will use the entrepreneur’s personal assets to pay the company’s debts.

The owners of a business have unlimited liability when there is no legal separation between the owners and the business entity. The owners are responsible for all liabilities and debts of the business. If the business lacks the funds to pay its debts or meet other liabilities, the owners must use their personal assets to satisfy those obligations.

Two types of business organizations have unlimited liability: sole proprietorships and general partnerships. 

A sole proprietorship is when an individual has total control over a business. Because the individual and the business constitute one legal entity, the individual’s personal assets can be used to satisfy the business’s financial obligations.

A general partnership consists of two or more people who have agreed to go into business together. Unless the partnership agreement states otherwise, the partners share equally in the profits and losses of the business. Each partner has the authority to make decisions that create obligations for the others. For instance, if one partner signs a mortgage agreement on behalf of the partnership to purchase a commercial building, the other partners will share liability for the debt. 

An option to a general partnership is a limited partnership, which includes both limited partners and general partners. Only the general partners have unlimited liability.

Pros

• Control over business

• Easy to create

• Simple payment structure

Cons

• Unlimited liability

• Business dissolves if the owner passes

• Control over business: Owners can make decisions quickly because they have total control over the business.
• Easy to create: Unlimited liability businesses require less paperwork and have fewer restrictions. 
• Simple payment structure: Profits and losses are passed directly to the owners, who report them on their personal tax returns.

• No protection from liabilities: If the business suffers a large financial loss, the loss will be passed to the owners. 
• Business dissolves if the owner passes: A partnership also dissolves when a partner dies unless the partnership agreement states otherwise.

Prospective business owners can avoid the risks associated with unlimited liability by establishing their business as either a limited liability company (LLC) or a corporation. Both types of organizations shield owners from personal liability for the company’s debts and financial obligations.

An LLC has elements of a partnership and a corporation. The company may be owned by one or more individuals, corporations, or other businesses, which are called members. State laws dictate how an LLC may be created. The company’s operating agreement determines how profits and losses are distributed to members.

LLC's aren't subject to taxation. Instead, members pay federal and state taxes on their share of financial distributions.

A corporation is a legal entity owned by shareholders and overseen by a board of directors. The board appoints corporate officers, who carry out the board’s policies and run the company’s day-to-day operations. Shareholders aren’t liable for the company’s debts and other financial obligations. Directors and officers aren’t liable as long as they haven’t breached their fiduciary duties to the shareholders.

• Unlimited liability means liability that’s not restricted by law or a contract.
• When business owners have unlimited liability, their personal assets can be used to pay the company’s debts.
• Sole proprietors and general partners have unlimited liability for their company’s financial obligations.
• Prospective business owners can shield themselves from liability by setting up their business as a limited liability company or corporation.

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