If you agree to be held accountable for the debt, your business structure will determine whether you could be liable for your company debts. The best thing about owning a partnership, LLC, or corporation is that the owners will not be responsible for the company's debts.
Under several corporate laws, LLC owners will not be required to deal with company debts unless they've agreed to pay the debts or state laws compel them to do so. With NC Planning discussing small business worries, it is crucial to speak to an experienced attorney to understand the available options.
In this article, you will understand when you can be liable for your company debts.
The Debt Accrued Will be Based on the Company Structure
Do you know that the nature of your business will determine whether you are eligible to use your possessions to settle the company debt? Now you know. In a sole proprietorship, the individual will settle the company's debts. Even in a partnership, debts will be paid by the partners.
In contrast, a corporate structure's objective is to offer protection to shareholders from dealing with losses. For example, if you own shares in an LLC or a corporation, you will not be required to pay the debt. But specific exceptions may be considered. For example, shareholders should pay taxes should the corporation fail to do what it's needed to do. Creditors could follow the right process and request payment from the right parties.
Signing a Personal Guarantee Will Leave You With Debt
Another method where business owners could be required to settle debt will be through signing a personal guarantee. This is common if a new company or an existing one with few assets requests a loan.
The lender, bank, or any other financial institution will understand that should the company fail in achieving its objectives (it's common), debt won't be paid. So, before offering credit to the company, the company must agree to pay the debt should the projects fail. This agreement is referred to as the personal guarantee.
Signing a personal guarantee will happen if your company has done the following:
- Rented office space
- Received credit to purchase real estate
- Bought materials and other vital products
- Rented or bought costly tools
Personal guarantees are crucial. Please don't take them lightly. Since you have to show proof you have assets before agreeing to take credit, failing can cost you everything.
Understanding How to Remove Business Liability
Choosing to file for bankruptcy is not common. But you will hear of situations where an individual liable for company debt has decided to file for bankruptcy in Chapter 7. That's why it is recommended to seek an attorney to help you understand what to do. If it's your first time dealing with business debt, you need to seek expert opinion to avoid costly mistakes.
Even though several people should attain specific requirements for Chapter 7, you need to understand that you will be eligible if the company debt is more outstanding than the personal debt. It is crucial to understand the process if you wish to remove liability without hassles.
