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Do you personally have to pay business debt?
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Do you personally have to pay business debt?

On Behalf of | Jan 5, 2023 | Business & Commercial Law |

Debt is something that can keep people from taking risks and making business decisions, simply because they worry about having to pay back that debt if the business doesn’t pan out. The amount of money needed to start a business might be so great that the individual knows they could never pay it back on their own.

But would you even have to do so? If you take out a business loan and things don’t go as planned, can the creditors come to you and ask for you to personally cover the money that you borrowed?

Did you start an LLC?

This question is why it’s so important to think about the different types of corporations you can form. If you started a sole proprietorship, for instance, then you certainly may have to pay off the money that you borrowed. That money is still in your name and you are responsible for the debt. You would either have to pay it off or you may have options to use bankruptcy to eliminate that debt.

But if you started a limited liability company, then you can take out loans in the name of the business. Your company is then responsible for paying back these loans on the set schedule, but you are not personally responsible. If the business goes under and cannot afford that debt, your creditors are not going to come take your savings, your house or any of the other assets that you own. The LLC creates a level of division between you and your company so that you don’t have to worry about this type of financial risk.

Setting it up

Because it’s important to know that you set up your company properly and that you are financially protected, be sure you are aware of exactly what legal steps to take.