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Which types of business structures allow for personal liability?

On Behalf of | Dec 4, 2023 | Business Law And Litigation |

If you are owner of a maritime business in California, you know that businesses are not always profitable. Market changes and issues impacting the maritime industry worldwide, as well as unsuccessful business transactions, can cause a business to struggle financially.

If your business has accumulated some debt over the years, creditors may be able to go after your personal assets, depending on the structure you have chosen for your business.

Which types of business structures allow for personal liability?

You have several options when choosing a structure for your business. Generally, if your business is classified as a sole proprietorship, general partnership, or limited partnership, you may be held personally liable for the debts of your business.

  • Sole proprietorships: For legal purposes, you will be considered the same as your business, if you are an owner of a sole proprietorship. Therefore, if your business cannot cover all its debts, creditors are allowed to pursue your personal property to cover the remaining debts.
  • General partnerships: In a general partnership, each partner will be held 100 percent personally liable for the debts of the business, regardless of what percent of the business each one owns.
  • Limited partnerships: In a limited partnership, the general partners will be held responsible for the debts of the business, while the limited partners have limited liability.

How can I protect myself from personal liability?

Business owners who are interested in avoiding personal liability may consider a limited liability company (LLC) structure. Generally, LLC owners are not personally liable for judgments against the business. However, LLC owners are not always fully protected. Owners of LLCs can also be held personally liable for business debts if their LLCs were not properly formed or did not abide by the necessary state regulations. In such cases, the court may “pierce the corporate veil” to hold LLC owners personally liable for business debts.

Before choosing a structure for your business, it is important determine whether you are willing to be held personally liable for your company’s debts and obligations.