While some small businesses are thriving, there are many other ones that are having a difficult time surviving in this current economy. When the economy slows, both consumers and businesses spend less. As a result, businesses large and small start to struggle.
For those troubled businesses that operate through an asset protection vehicle like an LLC, the debts and obligations of the business are those of the limited liability company and not the business owners personally. This general rule applies as long as the business owners did not personally agree to be liable for business obligations.
This is an important concept because in the worst case scenario when a business has no choice but to file bankruptcy, it is the legal entity that files bankruptcy not the business owners. If the same business was a sole proprietor business, then the business owner is personally responsible legally for all the debts and obligations of the business.
The exact same troubled business operating outside of an LLC format forces the business owner to file personal bankruptcy if his business is unable to handle all the business debts and obligations. A personal bankruptcy is one of the worst thngs to have on your credit record and it will affect your financial profile for many years.
If an LLC needs to file bankruptcy, the bankruptcy does not affect the financial credit of the business owners. Remember, the LLC is a separate and independent entity. This is another benefit that every new business owner should value when starting a business.
Small business is always worth the effort. It is possible to build enormous amounts of wealth but it also can create problems and challenges. Many successful entrepreneurs experienced several business failures before they made it big. A smart business owner should always use risk management planning and asset protection methods such as setting up an LLC.
