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Q.If my business fails, what can I lose?
A.If you are a sole proprietor and your business goes under, you are personally liable for its losses. As a sole proprietor, your house, car and other personal possessions could be seized to pay for the debts your company has incurred. To escape, the sole proprietor will often seek the protection of the bankruptcy court by filing a Chapter 7 or 13 bankruptcy petition.
If the failing business is a corporation, or a limited liability company (LLC), the business owner may be able to escape personal losses. This is the main reason why businesses go thorugh the expense of incorporation.
However, the owners of some small business corporations (and LLC's) often find their own personal assets at risk. Some because they didn't properly maintain their corporation; Others because some lenders, creditors or landlords required personal guarantees from the small business owner as a condition to extending the corporation or LLC credit. Such a personal guarantee exposes the guarantor's personal assets (house, car, savings) if the business fails or of if the corporation or LLC defaults on a financial obligation.
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