Starting a business means taking on a degree of risk. Entrepreneurs invest both time and money into a business concept. They will often also need to give up outside income while they devote their efforts to their new organization.
Not every new business is successful. Some entrepreneurs will have to dissolve their organizations after creating them, possibly because they never gained traction. They may have significant debts related to the organization’s creation or the cost of operations. An entrepreneur’s personal resources are potentially at risk when the company fails unless they create a separate business bank account as early in the startup process as possible.
Entrepreneurs can be liable for business losses
Technically, many business types, including limited liability companies (LLCs) help diminish the personal risk associated with starting a business. Entrepreneurs have a degree of separation from the business which can protect their future income and personal assets.
However, seemingly small mistakes can undermine those protections. Creditors and those filing a lawsuit against a closing business can sometimes ask the courts to pierce the corporate veil so that they can hold an entrepreneur personally accountable for the company’s financial obligations. Misconduct is often a key component of such efforts.
Small mistakes, like commingling personal assets with business resources or using a personal checking account for business expenses, could increase the likelihood that creditors could successfully take action against an entrepreneur’s personal assets. The sooner in the startup process an entrepreneur creates a separate business bank account, the less likely they are to face claims against their personal resources.
Learning about common pitfalls that reduce an entrepreneur’s protection may be beneficial for individuals thinking about starting a business. Seeking legal guidance early can help individuals to avoid the kinds of missteps that could prove devastating if their first attempt at business success doesn’t pan out.