If your company is facing a lawsuit, the ramifications could be serious. You may be worried that the payout from that lawsuit is going to bankrupt your company, and you may also worry that you’re going to have to use your personal funds to pay some of the money back. You’re concerned that this issue is going to change your financial future forever.
But do you have to pay if your company gets sued or faces other sorts of financial issues? Whose obligation is that?
Did you set up an LLC?
The first question to ask is just what kind of company you have. If it’s a sole proprietorship, for instance, this means that you take on the financial obligations of the business as the owner of that business. Someone who sues your company could also sue you personally.
That being said, if you set up an LLC, this is called a Limited Liability Corporation for a reason. It means that you’re not liable for all those costs, at least on a personal level.
Your business may still be responsible. You may have to pay out as much of the lawsuit as possible, and there is a chance that you could have to file for bankruptcy or at least restructure your finances moving forward. But, if the business runs out of money, then you cannot personally be held liable for any remaining costs. You at least know that your own financial situation is secure, no matter what happens to your business.
This illustrates why it’s so important to know exactly how to set your business up, what options you have and all the steps you’ll need to take to protect your future.