How Would I Be Held Responsible for the Debts of My Sole Proprietorship?

As a single owner, you have one of the simplest ways to run business in the United States. This has several benefits, including a near-complete absence of paperwork necessary in establishing one. When you start a business, your sole proprietorship is automatically formed. You and the company are still one and the same. Doesn’t it seem simple and straightforward? That is, yet there are certain downsides to its simplicity.

Who pays the bills?

As simple and handy as being a sole proprietor is, there is one huge disadvantage. The liability of a sole proprietorship is boundless. Since there is no legal separation between the business and its owner, the owner is entirely accountable for any obligations incurred by the firm. If you are a lone owner and make a poor business choice (or many), you will very certainly be held accountable for any obligations. If you fail to pay, your assets, including personal and real estate, may be liquidated. Although your company’s assets may be given precedence, don’t expect creditors to be forgiving.

What Are Your Options?

If you operate a firm with a high risk of going into debt, Sole Proprietorship liability may put you at a significant disadvantage. In certain circumstances, you should explore exploring for alternatives that may insulate you from responsibility. It could be a better idea to establish your firm as a S corporation or a limited liability company (LLC). Both are regarded different legal entities, and as such, only they may be held accountable for any commercial obligations. The negative is that they are more complicated and need more paperwork to construct.