When a business goes under and can’t pay off its debts, the creditors will often come looking for assets. This could include things like real estate, equipment or even inventory. Essentially, the creditors are just trying to find all the assets the business owns so that they can claim those, even if that doesn’t mean that they get back all of the money that was owed.
This often makes business owners feel a bit wary. They may have an idea for a way to expand the business, but they’ll know that they need to finance it. If it fails, then they are worried that the creditors are going to come for their personal assets, as well. No business owner wants to lose their family home because of a downturn in the market. Can this happen?
It depends on what structure you use
Your business structure is very important because it can determine your liability for these debts. If you have a limited liability company (LLC), then only the business’s assets are in jeopardy. The creditors can take those assets or money that the business has on hand, but they can’t come to take your personal assets. You’re not going to lose your home or your car or your life savings.
However, if you’re not set up as an LLC and you’ve chosen a different business structure, or if you haven’t chosen one at all, then you could be personally liable. Many people who start small businesses on the side find out that they are responsible for all that debt, which amplifies the risks that they may take in the course of running their business.
You can see why it’s so important to set your business up correctly from the very beginning. Be sure you know what legal options you have.