If you are starting your own business in Illinois, you are probably aware that business owners face many unique challenges that they would not face if they were employees. One challenge may be being held personally liable for debts owed by the business.
What is personal liability?
No matter how successful your business is, there is a chance that you will get sued by a client and lose in court or have to pay off debts to creditors. If the business does not have the necessary assets or funds to pay off these debts, creditors may be able to go after your personal home, car, etc.
How much personal liability will I have?
Your personal liability will depend on several factors, including the business structure you choose for your business. Generally, there are certain types of entities (e.g., sole proprietorships, general partnerships) that will expose you to personal liability, while others (e.g., limited liability companies, corporations), will protect your personal assets.
Here are a few other tips for avoiding personal liability:
- Sign up for general liability insurance
- Avoid signing personal guarantees for business loans
- Separate your business assets from your personal assets (avoid commingling funds)
- Maintain thorough and accurate financial records
Additionally, you may want to consult with a business law and commercial litigation attorney as soon as you decide to start a business. Your attorney can help you avoid some of the pitfalls a lot of business owners face when first starting out.