If you are looking to set up a business, you may be worried about putting your personal assets at risk. For instance, maybe you are just thinking about creating a sole proprietorship in your own name, or maybe you are setting up a partnership with a friend. Either way, you are going to need business loans to get the company off the ground.
But what happens if you default on those loans? You know the impact that it will have on the business itself, but what about your personal assets, such as your retirement savings or your family home? Could creditors theoretically take these, potentially through a lawsuit, because your business defaulted on its loans?
Using an LLC
It does depend on the business structure that you use during the business formation process. A partnership or a sole proprietorship may be open to financial liability, and your personal assets could be at risk.
However, if you use a limited liability company (LLC), then you can establish the business structure so that only the company is responsible for the loans that it takes out. If your business defaults on those loans, creditors may be able to take business-related assets, such as inventory, real estate or machines and equipment from the site. But they can’t come after your home, your retirement savings and other such personal assets.
This is why it is very important to know how to set up your business and to have a plan to protect yourself financially. Be sure you are well aware of all of your legal options and the steps you will need to take.
