Is business debt a personal risk? 

Is business debt a personal risk? 

On Behalf of | Aug 30, 2022 | Corporate Law |

Many business owners have to take on debt. This can represent a fairly big risk. They must know that they’re going to get a proper ROI (return on investment) from this debt, and they need to know that the business will be profitable enough for them to pay back the loan.

But this debt becomes even more problematic if the business owner is worried about being personally liable. It’s one thing for the company itself to have some debt, but is the owner going to be less likely to take on that risk if they know that they could lose their personal savings or even their family home? Is this a risk that you have to worry about?

Is your company an LLC?

The first thing to ask is just whether or not your company is a Limited Liability Company (LLC) or not. if it is not, you may be running a partnership or a sole proprietorship, or you may have used a different corporate structure. In some of these situations, such as with a sole proprietorship, this means that you are taking a personal risk when you take on business debt. You are responsible for repaying that debt even if the business itself can’t do it.

If, however, your business is an LLC, then you do not carry this personal liability. Only the business itself is liable to repay the debts. If you were unable to do so and had to declare bankruptcy and close your doors, for example, then the creditors could not come after your personal assets to try to make up for the money that was still left on the loan.

This is just one reason why it’s so important to understand your legal options when setting up a new business.