Am I Personally Liable for the Debt of My Sole Proprietor Business?
Sole proprietorships do not offer the same level of legal protection as other business structures. The main difference is how much of your debt, the company’s debt, and your assets are tied. Sole proprietors are personally liable for the company’s debt and the company’s assets are considered the proprietors, which can lead to issues.
Sole proprietorships can still be good options in certain cases, but you have to know what they entail and what you can do if you end up in debt trouble. Let’s take a look at how liability works for sole proprietorships and what you can do if you have debt issues.
Sole Proprietorships and Debt
If you’re a sole proprietor, you need to be aware that you and your company are pretty much one person and that you are responsible for most of the company’s debt. You should also know that your company will be liable for your personal debt, and if you owe money to a creditor, some of your business’s assets could be exposed.
So, you will need to keep your finances in order if you want to protect your business. You should also run your business responsibly and make sure that you’re covered against lawsuits as your assets could be seized as a result.
Business Credit and Personal Credit Are Tied Together at First
Another thing you should know is that your personal credit score and business’s credit score will be tied at the beginning. One thing that many people aren’t aware of, however, is that you can build your business’s credit even if as a sole proprietorship.
As long as you’re registered and have a trade name or DBA name, you can apply for a DUNS number and start the process of building your credit.
You can do this by applying for a secure business credit card and opening accounts with suppliers among other things. Putting utility accounts to your business’s name and paying them on time will also help.
How to Avoid Issues
If you’re a sole proprietor and you want to keep your business safe, then you will have to improve your money habits if you’re currently having issues with creditors. If you’re currently dealing with debt collections, then it would be a good idea to have these issues fixed right away to prevent them from affecting your company.
You should also know that there are legal limits to how persistent debt collectors can be. If you don’t want collectors to call you in your place of business, for instance, then this can be done through a request.
They are also forbidden from calling you from 8 AM to 9 PM, using threatening language, or making repetitive calls, among other things.
If you think you’re being harassed by a creditor, we suggest that you speak with a credit law team right away to make the harassment stop. They might also help you come to an agreement with the debt collecting agency. If you’re looking for a good firm, Fair Credit is a great option.
Sole proprietorships have some benefits, but they do have a lot of risks as well. If you are a sole proprietor, you’ll have to take personal and business finances very seriously as they’ll forever be intertwined.
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