Our experience rivals that of any of the big firms in southern Nevada. Our smaller size allows us to offer far better rates and service to our clients.

Are you personally liable for business debt? 

On Behalf of | Aug 30, 2023 | BUSINESS & COMMERCIAL LAW - Business Litigation

Many business owners need to take on debt in the form of business loans simply to open the company initially. They may also take on additional debt in the future to fund research and development, expand the business, bring on new talent, buy other real estate locations and much more. For a business to thrive, it generally has to utilize debt successfully.

But one thing that sometimes holds business owners back is that they’re worried about the liability. Maybe a business has been successful on a small scale. The owner is considering taking on a major loan to expand the company, believing that it will be even more successful long term. But if it isn’t, is this too much of a risk? Would that business owner then have to pay back an unaffordable loan if the business fails? This fear of personal liability can keep people from taking the leap that they need to help their business grow.

Setting up an LLC

The reality is that business debt is treated differently in different structures. If someone uses a Limited Liability Company (LLC), then they are usually not personally liable for the debt. If the business fails, the owner likely has to sell any remaining assets, such as real estate, products, and much more. They can then pay back a portion of this debt, but only the business has to make those payments. The owner gets to keep their personal finances so they’re not worried about jeopardizing their family’s future, their ability to retire and things of this nature.

It doesn’t work this way for all business structures, however. For instance, someone may be a sole proprietor. If so, then they would be liable for the debt that the business incurred. This is why it’s so important to understand all the legal options and how to structure the business properly. The structure may also need to change over the lifespan of that business.