Avoiding Personal Liability for a Debt

Full Video Transcript

Liability for a debt or other claim is sometimes limited under the law. For instance, owners of an incorporated business or limited liability company aren’t personally liable for business debts and other claims. This means if the business fails, creditors cannot seize or sell the owner’s home, car, or other personal assets, though they can lose their investment in the business. Despite limited liability under the law, small business owners often waive these protections through contracts. Banks and other creditors often require the owner to sign a personal guarantee of business debt. Also, business owners who personally participate in wrongdoing may be subject to personal liability as a result. To avoid or minimize your personal liability, start by properly forming your business as a protected legal entity. Thereafter, contracts should be signed on behalf of the business only and not in your personal capacity. Finally, if you’re asked to sign a personal guarantee, make sure your attorney reviews it first. For more information about personal liability, contact an attorney in your area today.