One thing that can sometimes hold business owners back from taking risks is that they do not want to risk their personal assets. A business owner may be considering taking out a loan to expand their company, but they’re worried that the business may not pan out. If it doesn’t, then they’re concerned that they’re going to be responsible for their company’s debt.
If your company is just a sole proprietorship, this could be true. You have not established a business entity that is separate from yourself, so the debts and assets are combined. You may be concerned about losing things like your home, your savings account, your retirement account or your personal vehicle if you default on your business debts. But how can you get around this?
Using another business entity
Often, the key is to establish your business as a type of entity that gives you protection. Perhaps the easiest way to do this for most new business owners is to use a limited liability company (LLC).
With an LLC, the business has the ability to take out loans itself. If that business fails, it is still responsible for paying off the debts, and this is why businesses go through bankruptcy and liquidate their assets. But if some of those debts remain after the bankruptcy process, you would not be personally liable for them. The obligations are not in your name, but in the name of the business itself.
In other words, understanding what legal steps to take at the beginning can help you avoid serious issues down the line. Don’t hesitate to look into all the options you have as a business owner.
