Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

Which of the following investment ownership types provides the most personal liability protection?

1. Sole proprietorship

2. LLC

3. S Corp

4. TIC

The correct answer is: LLC

The choice of an LLC, or Limited Liability Company, as the investment ownership type that provides the most personal liability protection is based on its structure and legal design. An LLC effectively separates the personal assets of its owners from the liabilities of the business. This means that if the LLC faces legal issues or debts, the personal assets of its members (owners) are typically protected from being used to satisfy those obligations. This protection is a significant advantage for investors because it lowers personal financial risk. In contrast, a sole proprietorship does not provide any such separation, leaving the owner's personal assets exposed. Likewise, while both an S Corporation and a Tenants in Common (TIC) arrangement offer some level of liability protection, they can have limitations compared to the comprehensive shielding provided by an LLC. S Corporations require adherence to specific compliance and operational formalities, which can sometimes complicate their use in smaller or less formal operations. TICs, on the other hand, does not provide liability protection on a personal level since each owner can be held accountable for the entire liability of the property. Therefore, the ability of an LLC to protect personal assets from business liabilities establishes it as the most secure option for liability protection among the choices given.