I'm clearing up my credit with Lexington Law and I'm starting up a new business. Should I be worried that creditors will come after the business?
4 Answers from Attorneys
Depends on how you start the business. If it is a corporation, it would be difficult to have creditors come after it, although not impossible.
I would agree with the attorney above that it will depend on how your structure your business. Generally, creditors may go after financial interest you may have, which could include your interest in a business. For these reason, it is important that your business establish certain protection against personal liabilities.
Feel free to call me or an attorney in your area for further counsel.
Mr. Hale and Mr. Betinol are right that a corporation would be largely protected from your personal debts. But your shares in the corporation would not be. A creditor could pursue those shares just as it could pursue other assets you own. (Some types of assets are protected to various degrees, but corporate stock is not.)
Mr. Hoffman gives you the correct answer, although I disagree with him that this makes the prior two answers correct. If you form a corporation that you own completely or at least a controlling interest in, the corporate form provides you no protection at all. This is because even though a creditor cannot levy directly on the corporation's assets, they can seize your shares of stock and take ownership of the corporation. They then just pay the debt out of the corporation's assets. If you form a corporation that you are only an investor in, but others own control, you are a little more protected, except you then face fraudulent transfer liability if you don't keep enough assets in your name to pay your debts. It is illegal to transfer assets to any person or business if it leaves you unable to pay your debts, and the transfers can be undone by a lawsuit against both you and the person or entity that gets them. The bottom line is that corporations and LLC's when properly done, protect the investors from liability for the acts and omissions of the business, but they provide little or no protection of the business assets from the personal liability of the owners.
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