Avoiding Personal Liability For Business Debts
As an entrepreneur, you should do everything in your power to avoid business liabilities from affecting your personal life. Here are a few measures to help you with this.
Don't Comingle Business and Personal Expenses
Ensure that your personal expenses and your business expenses are completely separate. Start by having separate bank accounts for your personal and business expenses. Deposit money into its own account and charge expenses into the right accounts. Your creditors will find it easy to come after your personal assets if the line between personal and business expenses isn't clear. For example, if you used a business loan to buy a personal car, then what can stop the creditor from coming after your personal assets to recover the loan?
Keep Complete and Accurate Financial Records
It is not enough to keep your personal finances separate from the business; everyone, from the business managers (assuming you aren't its sole manager) to the IRS and even your creditors, should know that your business and personal finances are separate. The only way to ensure this is the case is to keep complete and accurate financial records of your business expenses. Keep minutes of all meetings (especially those that deal with financial issues) and keep track of all expenditures and liabilities so that you can prove them when needed.
Always Follow Business Protocol
Running your business informally can also make you be personally liable for your business debts. Making unilateral decisions, holding informal meetings at home, and changing business decisions at will can easily blur the line between what is personal and what is not. Avoid all that by adhering to the company policy — at least for all financial issues involved. For example, if the business policy is to involve all directors and treasurers in financial decisions above a certain dollar amount, don't pressure the directors to make the decision without involving the treasurers. Otherwise, you may be the one facing the lawsuit (instead of the business) if the decision causes a liability for a third party.
Get Adequate Insurance Coverage
Lastly, most creditors will only come after your personal assets if your business cannot settle the liabilities on its own. You can easily avoid such a scenario by buying adequate insurance coverage for that business. Evaluate your business and all the risks it faces so that you can cover all your bases, so to speak. That way, your insurance carrier will be the one responsible for financial liabilities your business may face, and the liabilities won't spill over to your personal life.
Hopefully, your business issues won't be affecting your personal life any time soon. If that does happen, consult a lawyer from firms like The Fernandez Law Firm, a Business and Technology Law Firm to ensure only your business, and not you as an individual, answers the liability charges.