If you are beginning your journey to own a business, you have countless decisions to make. How will you perform payroll duties? Where will your office be located? And most importantly, will your business be structured as a separate legal entity? Most small businesses are filed as either sole proprietorships or LLCs. Both have their own benefits and drawbacks that are important to understand before making a final decision.
Consider the Implications of Liability
Owning a business as a sole proprietorship or LLC determines the risk to your personal assets and personal credit score in the event that your business declares bankruptcy or is sued or your founder needs a myrtle beach DUI attorney because of a mistake. An LLC tends to provide more protections than a sole proprietorship because it establishes your business as a separate legal entity. In other words, if you go out of business, your company will take the hit instead of your personal bank account or family home. A sole proprietor does not have access to such protections.
The Relationship between Your Business Entity and Personal Credit
If you ran your business as a sole proprietorship and are now declaring bankruptcy, your personal credit score will definitely be impacted because you are personally responsible for all of your business debts under state and federal law. The law does not recognize any differentiation between you and your business, so you are personally responsible for the debts and can only eliminate them by filing a personal bankruptcy.
On the other hand, if you run your business as a corporation or LLC, you are most likely not responsible for the debts of your business. Your Palm Beach business attorney can file for bankruptcy without influencing your personal finances.
Exceptions to LLC Protections
If you made personal guarantees to be personally responsible for the payment of an LLC’s business debt, and your business debt is not paid in full, you become obligated to handle it. Unpaid obligations are reported to credit bureaus and will sink your credit quickly. It’s also possible that your LLC or Corporation bankruptcy can hurt your personal credit if your business owes taxes.
Overall, the decision between a sole proprietorship and LLC should be made with the professional legal help of a personal injury attorney myrtle beach who understands the nuances of business law and can guide you in the best direction for success.