Are you responsible for your company’s debts?

Are you responsible for your company’s debts?

On Behalf of | Mar 16, 2022 | Corporate Law |

Part of starting your own company may be taking on a significant amount of debt. This could be used for real estate, supplies, technological needs, products and materials, research and development and much more. You’re also going to incur more debt as you go if you’re buying parts and supplies for later sale and in many other ways.

You know that you can’t really avoid debt, but what you want to know is whether or not you’re going to be responsible for it. Does the debt belong to your company, as an entity, or does it belong to you, as an individual?

The structure of your business is incredibly important

With a question like this, one of the main things to consider is the structure of your business. If it is a sole proprietorship or if you are an independent contractor, the odds are that you are responsible for the debt that your company holds. This is not seen as any different than your personal debt. If your company owes too much money and can’t pay it back, you may have to pay from your personal finances to cover those costs. There’s little difference between you and the business.

If you’ve incorporated as a different structure, such as an LLC (Limited Liability Company), then you are not personally liable for that debt. The debt belongs to the entity that is your company, and you don’t have to pay it off from your personal savings. If the business can’t pay it off, then that company may have to declare bankruptcy or take other steps, but your personal wealth is safe.

It’s understandable why you would be concerned about something like this, and it just shows why you absolutely need to know about all of the options you have while setting up your company.