Businesses And Bankruptcy – Are Business Owners Liable For Their Business Debts?

Filing Bankruptcy Is A Big Task For A Small Business. Contact Winfield Bankruptcy Attorneys Today To Answer Your Questions.

As a small business owner, you have a vested interest in whether or not your business is successful. Your business’s failure to succeed can often feel like a personal failure. Unfortunately, some businesses may go through the same financial troubles as individuals face, and bankruptcy may be the only option for a business to get back on its feet. As a business owner facing the possibility of having to file for bankruptcy, you will likely be concerned about whether or not you can be held personally liable for your business’s debts. The answer to this question depends upon what kind of business you have.

Sole Proprietors

A sole proprietor owns their business completely on their own and has not established the business as a separate legal entity. While this is one of the easiest types of businesses to establish, it is also the most risky when bankruptcy is looming. Sole proprietors are one and the same with their businesses and are liable for their business’s debts; creditors may attempt to go after your personal assets as well as your business assets if you are not able to pay them. Sole proprietors have the option of filing for bankruptcy under either Chapter 7 or Chapter 13.

Partnerships

Partnerships, like sole proprietorships, are unincorporated, but they are owned by at least two individuals. They come in several different forms, including:

General Partnerships – two or more individuals who have an agreement to conduct a business for profit. All partners would be personally liable for any debts of the business.

Limited Partnerships – two or more individuals who have an agreement to conduct a business, but at least one of the partners is a general partner who is personally liable for the business’s debts. Any other partner would be a limited partner who does not bear responsibility for business debts.

Limited Liability Partnerships (LLP) – two or more individuals who have an agreement to conduct a business, but who have created the LLP in order to shield each of the partners from liability for the business debts.

Corporations

With a corporation, the owners are shareholders; once the entity is incorporated, shareholders are not personally responsible for the corporation’s debts and the only way that creditors can collect on debts owed by the corporation is for them to go after the corporation’s assets. The exception would be if shareholders proactively took ownership of the corporation’s debts either by cosigning or personally guaranteeing the debts or if the creditor can prove that shareholders commingled funds or the corporation was not handled properly because formalities were not followed or the corporation was created solely to shield shareholders from personal liability.

Limited Liability Company (LLC)

As with a corporation, owners have limited liability for debts of the LLC, and the same exceptions as outlined above would apply here as well. One difference is that with an LLC, the owners are members instead of shareholders.

Professional Advice Is Just A Phone Call Away

If you are involved in a business and considering bankruptcy, Whitten & Whitten can help you determine which option is best for you as well as the business overall. Our legal professionals will help you decide how to best protect yourself and your business and get a fresh start. Contact us online or call us at 219.756.0555 to schedule your free consultation. Take control of your financial situation today.