Since the legal form adopted by a firm determines the type of legal responsibility borne by its owners in case of bankruptcy, in this paper we argue that a firm under a limited liability status should be characterized by higher than average risk exposure, in terms of lower capital-labor ratio and lower expected labor productivity. This result also depends on the firm capital structure, which affects the firm bankruptcy probability. To test these predictions we use a panel of 1313 Spanish firms from 1990-1994 and separate them into corporate forms (with limited liability) and entrepreneurial forms (with unlimited liability). Our empirical results confirm the hypothesis that both legal form and capital structure determine the firm’s risk exposure.