If Your Business Goes Under, What Else Could You Lose?

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. On the other hand, if your business is a corporation or a limited liability company (LLC), you can escape personal losses if your business fails. This is the main reason why businesses go to the time and expense of incorporation.

But even an incorporated business owner's assets could be at risk. Some lenders, creditors, or landlords require personal guarantees from small and emerging companies before extending credit or awarding a contract. Such a personal guarantee exposes the guarantor's personal assets (house, car, savings) if and when the business goes under or the financial obligation is defaulted.