Wiener and Wiener LLP
With Offices In Allentown And West Palm Beach, We Serve Throughout Eastern Pennsylvania And Florida

Just how risky is business debt?

On Behalf of | Sep 22, 2022 | Business & Commercial Law |

You have an idea for a new business, and you believe it can be financially viable. However, you know that you’re going to need funds to get it started. This means taking out loans or getting money from investors.

What worries you is that taking out this much debt seems like a major risk. If your business doesn’t pan out the way that you hoped, is it going to ruin your life? Are you going to run into all sorts of issues or lose personal assets? This is a fear that holds many potential entrepreneurs back because they don’t want to risk it.

Choosing your business structure

For situations like this, when you have such valid concerns, you need to consider the solutions carefully. In this case, it’s worth thinking about your business structure.

For example, if you start the business under your own name or simply as a sole proprietorship, then the risk does belong to you. If you take out loans and the business fails, you’re still going to owe those creditors.

However, if you start a Limited Liability Company (LLC), then the company itself can take on the risk and those loans. If the business does not pan out, you are not personally responsible for paying the loans back. They remain the responsibility of the company. You may have to liquidate assets or take other steps to pay off what you can, but you’re not going to lose your personal assets, such as your family home.

This is just one reason why it’s so important to understand exactly how to structure your business when you’re just getting off the ground. Take the time to look into all of your legal options.