Start My Answer
loading...

Are You Personally Liable for Your Business Debts?

George Simons | December 02, 2022

George Simons
Co-Founder of SoloSuit
George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD-MBA. In his spare time, George likes to cook, because he likes to eat.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Is your business not performing like you'd hoped? Find out if you're personally liable for your business debts and what you should do about it.

Must owning a business mean being personally liable for its debts? Learn steps you can take to avoid putting your personal assets at risk.

The promise of financial reward and personal satisfaction that made you decide to start your own business must be tempered with the realization that you may be held personally liable for its debts. The type of entity or structure that you choose when setting up your business affects the degree to which you may be held responsible for its financial obligations.

A corporate structure, for instance, offers better protection for you from creditors of the business than operating it as either a sole proprietorship or partnership. Even the protection afforded by operating as a corporation can be minimized or lost depending upon how you operate the business.

Before jumping into a new business, get help setting it up from an experienced business law attorney who can help you to choose the best business structure for it. To give you a head start, take a look at some information about business structures and how what you do while running your business can open you to personal liability for its debts.

Protect your assets by responding to debt collection lawsuits with SoloSuit.

What makes an owner liable for business debts?

When creditors attempt to hold an owner personally liable for debts of a business, it generally can be traced back to one of the following circumstances:

  • The structure chosen for operation of the business.
  • The failure of its owners to follow formalities in the operation of the business.
  • The owner intentionally accepted responsibility for the debt.

Sometimes, a combination of these circumstances can lead to personal liability.

How does the type of business structure affect personal liability?

The type of entity or structure chosen for a business affects how it operates on a day-to-day basis, how it is taxed, and, perhaps of most importance for you, the risk of personal liability for its debts. The four frequently encountered types of business structures are the following:

  • Sole proprietorship.
  • Partnership.
  • Limited liability company.
  • Corporation.

When you operate a business as a sole proprietor, no separation exists between you and the business. They are easy to set up and operate, but they offer no protection to you against being held liable for business debts. Debts incurred through business activities are your debts rather than being debts of a separate business entity.

Two or more people agreeing to conduct business together is a partnership. Operating as a partnership does not form an entity capable of protecting the partners against personal liability for business debts. However, a limited partnership, which is a special type of partnership, offers some protection to some of its owners.

A limited partnership includes general partners and one or more limited partners. General partners have unlimited liability for business debts, but the liability of a limited partner for business debts cannot exceed the investment made in the business by the limited partner. The tradeoff is that limited partners cannot participate in managing the operation of the business.

Corporations and limited liability companies are different business entities, but each of them protects its owners and their assets against claims by creditors of the business. The protection comes about because each creates a separate entity that owns and operates the business either as a corporation or as a limited liability company depending upon the structure.

Don't let debt collectors take it all. Respond with SoloSuit and win your case.

Failing to follow formalities may subject you to personal liability

The protection from personal liability for business indebtedness that you get by operating as a corporation or limited liability company can be lost by failing to follow legal formalities. For example, using business credit cards or funds from its bank account to pay your personal expenses or to purchase things for your home can lead to creditors claiming that you failed to maintain the separation between yourself and the business entity. If a court agrees with them, the separation between you and the business along with the protection against personal liability is lost.

Intentionally making yourself liable for business obligations

A common scenario for a newly formed business operating as a corporation or limited liability company is for landlords, banks, and credit card companies to want at least one of the owners to cosign or guarantee the lease or debt. Accepting responsibility for financial obligations in this manner makes you personally liable for them regardless of the protection you have from the type of business structure.

Things you can do as a business owner to protect personal assets

Reviewing the risks associated with the operation of a planned business venture with your business law attorney helps to determine the type of business structure best suited to protect you from personal liability. Your attorney can review with you the formalities you need to follow to avoid inadvertently losing the protection afforded by the business as a separate entity. Some of the formalities include maintaining accurate records of all business transactions, keeping your personal funds and accounts separate from those of the business, and not using the business as your personal ATM.

Another way to avoid subjecting personal assets to business creditors is to understand the significance of all legal documents that you sign on behalf of the business. Make certain that anything you sign does not obligate you personally by asking your attorney to look at it in advance.

Written and submitted by:
Steve Howards

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

Respond with SoloSuit

"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James

Get Started

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Settle your medical debt

Having a health challenge is stressful, but dealing medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Federal debt collection laws can protect you

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Get debt relief in your state

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt state guides

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote a guide on each state’s statutes. Check it out below.

Statute of Limitations on Debt Collection by State (Best Guide)

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

Other wage garnishment resources

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

How to repair and improve your credit score

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt.

How to resolve student loan debt

Struggling with student debt? SoloSuit’s got you covered. Below are resources on handling student loan debt.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources

It only takes 15 minutes.

And 50% of our customers' cases have been dismissed in the past.


"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather



Get Started


Contents