You’ve likely heard that many major companies today are actually businesses that started in the garage. Examples include major tech companies like Microsoft and Amazon.
You may have a business idea yourself. You realize that you don’t need to have an office building to get your idea off the ground. You may be able to do it from your home.
However, you’re worried that trying to start this business on the side is going to put you at risk. If the business doesn’t work out, you know that it could go bankrupt. Does this mean that you would also personally face financial challenges?
It depends how you set the business up
If you set the business up under your own name as a sole proprietorship or you just start running it out of your garage without even officially declaring it a company, then you are personally liable. If the business takes on debt under your name and you fail to pay it back, you may have to declare personal bankruptcy. You are still responsible for things like the loans you took out or any other actions by creditors.
However, there are certain business structures that you can use to get rid of this liability. For example, you could incorporate your business as an LLC, or a limited liability company. If the LLC takes out loans and can’t pay them back, while the LLC might go bankrupt, you may not have to do so personally.
Addressing personal bankruptcy
If you do find yourself facing a lot of personal debt and you’re trying to get your finances straightened out, make sure you carefully consider all of the tools at your disposal.