The Law Offices of Sanford F. Young, P.C.

Getting results since 1978

Are you liable for your company’s debt? 

On Behalf of | May 28, 2024 | Business & Commercial Law

One thing that sometimes holds prospective business owners back is that they know they’re going to have to take out substantial loans. They’re worried about the liability that this creates. They do believe that their business idea is going to be successful, but what if it’s not?

For instance, you may have an idea for a local restaurant. But you’re going to need to get investors and buy hundreds of thousands of dollars worth of equipment. And that’s before you’ve even hired a staff or rented a physical location. If you take loans to start your business, are you going to be facing insurmountable debt if things don’t work out?

You are not personally liable with an LLC

It depends on how your business is structured. But if you use a Limited Liability Company (LLC), then you are not personally responsible for the debt. Only the business itself is responsible.

So, in the example noted above, you may have to liquidate the company’s assets to pay off the portion of the debt that you owe. But you would not run the risk of losing your personal retirement accounts, your savings account, your family home, your personal vehicle and things of this nature.

This is one of the main benefits of using an LLC. It gives business owners the ability to take on financial debt without worrying that it’s going to ruin their lives if the business isn’t successful.

Setting up your company

Of course, this only works if you use the right company structure. Be sure you know exactly what legal steps to take to protect your interests.