American Indian Owned Law Firm

If your business fails, what happens to the loans?

On Behalf of | Jun 3, 2024 | Corporate & Business Law

It has always been your dream to become a business owner. You don’t like working for other companies and you want to have more freedom to choose how your business operates.

The big hurdle that you face is just financial. You know that it’s going to take a lot of money to start the business, even before you have any income. This means that it’s a risk. What if the business fails after you’ve already taken out loans or found investors? Is the financial risk too big for you personally?

Operating an LLC

Being nervous about the financial risks is very natural. It does hold some business owners back because they worry about losing personal assets if the business doesn’t pan out.

But there are ways that you can avoid this. One example is to start an LLC, or a Limited Liability Company. The company is still responsible for all of the business’s loans. But if that company goes bankrupt, the business owner is not personally responsible.

In other words, you can establish your business as its own entity, and the business can get loans independently of you as an individual. If the business works, you pay back the loans. But if the business doesn’t work and you have to do something like declare bankruptcy, you can simply sell the business assets to pay off as much of the remaining balance as possible. You don’t have to worry about losing things like your personal vehicle, your family home or your retirement savings.

This shows why it is so important to structure your business correctly. Be sure you know about all of the legal options at your disposal.