Business Debt: Are You Personally Responsible?

Business Debt: Are You Personally Responsible?

As with many legal issues, the question of whether or not you are personally responsible for any business debts you might have is answered with “it depends.” The full answer to the question depends on what type of business you own, what type of loans you have taken, and other actions you have taken with acquiring loans or covering costs. Here are some areas to check to determine if you might be personally responsible:

  • Business Type. What type of business do you own? If you have a sole proprietorship or partnership then you are regarded legally as the same entity as your business and personally responsible for debts. However, if you have a corporation or LLC you are regarded as a separate entity and usually are not responsible. Even so, there are some other actions you might have taken that could make you responsible for certain debts.
  • The Loan Itself. Take a look at any loans you have taken and what you had to agree to in order to receive that loan. Many times lenders will not give a loan to an owner of an LLC or corporation unless they can possess more than just the company’s assets in case they are not paid back. They have the possibility of possessing your personal assets upon lack of payment if they give you the loan with the requirement that you agree to allow this to happen. Make sure you have not made any of these agreements.
  • Collateral. Collateral is one of the agreements you can make with a lender that makes you personally responsible for debt. If you offered up some property as collateral to secure the loan, this property can be collected if you do not pay that loan back.
  • Mixing Personal Things with Business. Neglecting to sign contracts on behalf of your corporation or LLC and instead signing them in your own name can make you personally responsible. If you used your own credit cards or personal loans to fund your business, you can also be personally held responsible.

Personal responsibility for business debts is a layered issue. We can clear up any questions you may have. Contact us!

Photo Credit: thethreesisters

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