To use a poker term, if you are a sole proprietor or partnership you are essentially all in on every transaction. By all in I mean everything your business owns and you own is at risk if your are sued.
Forming a Limited Liability Company or Corporation, if properly created, allows you to invest into the business and limit your liability to that investment. To have this limitation of liability you must put in place a formal structure for the company and keep your business assets separate from your personal assets.
Elliott Stapleton Attorney with CMRS Law