Your business has to take on a certain amount of debt just to get off the ground. Say that you run a restaurant where you need to buy appliances and other such assets. You also have to rent a space, you may need to hire employees and buy inventory or products. It all depends on the type of business you’re running, but there’s a certain amount of debt that is required.
Some business owners worry about this because they don’t want to take out enormous loans, have the business fail, and then personally have to pay those loans back. It’s one thing to take something of a risk with a new business, but personal liability could threaten their family life and their stability. They don’t want to lose their home or their car, for instance, or their retirement savings.
Are you running an LLC?
You may be liable for the business’s debts if you’re running something like a sole proprietorship. This is essentially just a business that’s running under your own name, and it is fundamentally tied to you. The earnings that you get from the business count as personal earnings and the debt that you take on also counts as your own personal responsibility.
However, if you chose to set your business up as an LLC, this business structure can protect you. LLC stands for limited liability company, and this means that you have a limited liability for the financial issues that the business may face. If your LLC takes out a loan and then goes bankrupt, you may have to pay back what you can from the business’s assets, but you don’t have to make personal payments.
Whether you’re setting up a new business or trying to resolve an issue that has arisen, you can see why it’s always important to understand exactly what your legal obligations are.