What liabilities are Sole Proprietors responsible for?
The sole proprietorship has unlimited personal liability since the business isn’t a separate legal entity. The sole proprietor is personally liable for all business debts.
Loans: A sole proprietor is personally liable for any loan towards the business. In case the business is unable to tender for the debt, the creditor has the right to sue you.
Expenses: Any credit purchase that the business is unable to pay will be transferred to the owner. The supplier can sue you for payment, but not the business.
Lawsuits: A sole proprietor is personally liable for paying any judgments against the business. In case a client sues the business for any health damage or physical damage.
Violation of governing regulations: If the business runs afoul of any regulations, then the government agency issuing the fines could demand payment from the sole proprietor in case the business fails to cover for the fees.
Sole proprietors are treated as the same legal entity as their business. This means they’re liable for things like:
- Business debts – if your business gets into debt, creditors may be able to seize your personal assets in order to recover that debt. This means things like your home, your car, and your financial accounts can all be taken by creditors.
- Personal debts – the reverse is also true. If you rack up personal debts for non-business-related things like credit cards and personal loans, creditors can seize your business assets. All business and personal assets are rolled int one.
- Personal liabilities/lawsuits – if business operations cause an injury or anything similar that results in a lawsuit being held against you, you may be personally liable for this too.
You can protect yourself against liability by setting up an LLC or an LLC Holding Company, which you can find more information about here: https://cindysnewmexicollcs.com/Advantages/LLC-Holding-Company-Structure
