Am I personally liable for my business debts?
As the owner of a Utah business, you have a lot on the line in terms of your finances and your reputation. Even the most successful businesses may face down years where debts exceed profits. Additionally, a business may be sued by former employees, vendors, and stakeholders, which may require the business to payout a significant amount in settlement proceeds.
Many business owners may be concerned that creditors will come after their own personal assets to cover the debts of their business. However, depending on the business structure you have in place, your personal assets may not be up for grabs even if your business falls into debt.
Proprietorships and partnerships may be personally liable
There are various types of business organization structures available to business owners, including: sole proprietorships, general partnerships, limited partnerships, corporations, and limited liability corporations (LLC). Generally, owners of sole proprietorships and general partnerships are personally liable for business debts. Creditors can come after your home, car, and other personal assets, if your business is unable to pay its debts.
Corporations and LLC. owners are not personally liable for business debts, as the business legally separate from the owner. However, there are some exceptions.
When are LLC owners personally liable?
L.L.C. owners may be personally liable for their business debts in certain circumstances. Some of these situations may include:
- Signing purchase and service agreements in your own name
- Putting your own property up for collateral when securing a business loan
- Personally guaranteeing the repayment of a debt
- Committing fraud or misrepresenting facts when applying for a business loan or credit
- Using personal credit cards or loans to support your business.
If you discover that you are in fact personally liable for some or all of your business debts, you have a couple of options. An attorney specializing in business law matters can advise you on next steps.