How can business owners avoid personal liability from business debts?
Besides selecting a business entity that will protect them from personal liability, such as a corporation or limited liability company, business owners should avoid signing personal guarantees, if it all possible. These business owners should also sign all business documents in the name of the business. For example, if a member of an LLC signs a contract for a supplier to deliver 100 reams of paper to the business, he or she should do so as a representative of the business, signing “in the name of” the business, so that it is clear in the contract that the member is not signing in a personal capacity. If it is not clear, and the LLC later defaults on payment under the terms of the contract, the supplier could try to obtain payment from the member who signed the contract. Corporations and LLCs should also maintain corporate formalities, such as separate bank accounts and regular business meetings, to ensure that the corporate status remains intact in the eyes of the state. Copyright © 2
Related Questions
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- How can business owners avoid personal liability from business debts?
