When you are first starting a business in Michigan, it is very easy to go into debt with all the startup costs involved. A business owner can use business or personal loans to help finance their new business, but those must be paid back with interest. On top of the initial startup costs, many businesses end up on the wrong end of a legal claim and have to pay out thousands of dollars in damages. If your business debts are too much for your business to handle, your personal assets may quickly become fair game for creditors, if you do not protect yourself during the business formation and planning process. Here are some tips on making sure that you are not held personally liable for your business debts.
Select the right business structure
Not all business structures are the same when it comes to personal liability. Generally, if you have a sole proprietorship or partnership, you and your business partner (if you have one) will be held personally liable for business debts. However, with limited liability corporations (LLCs) and corporations
Separate the business from the personal
No matter what business structure you choose, if you use your business to pay for personal expenses or bills, you are opening yourself up to personal liability. Maintaining a separate bank account intended solely for the business may be the best way to keep your personal assets separate from the business altogether. Also, keep in mind that signing a personal guarantee for a business debt will also make you personally liable.
Obtain business liability insurance
Business liability insurance can be beneficial for business owners trying to avoid personal liability. Different forms of insurance are available for business owners, including property insurance, building and contents coverage, and commercial general liability and comprehensive public liability insurance. An insurance agent can assist with determining which insurance is best suited for your business needs.
Keeping personal assets separate from a business is key for any business owner. A business law attorney can help ensure that you are protected from personal liability of your business debts.