Q & A: What protection does a limited liability company offer to small business owners?

This question was emailed the other day, and I must say, in my mind this is only half the question – but first things first. Sooner or later you will think about doing a little more business, protecting yourself more, and that will bring you to the question of changing business and trading environment All small business, micro business, sole traders, freelancers and home businesses can be run in the form of limited liability companies.

A limited liability company – LLC in the US, Ltd. in the UK – is a legal entity, like a different person, so you, the business owner is not direct liable for any debt. The company is to be conducted by laws governing limited liability companies, and providing you do, your company has “limited” liability.

The protection a limited company offers is that when the business fails, and you have to close it down, the company is only liable with it’s assets, i.e any positive bank balance, inventory and other assets.

What does a limited company not protect you from? That is the second part of the question you need to know about.

Answer: Any loans or other arrangements you have made, and signed a personal guarantee for, i.e. a bank loan, or over-draft.

Which brings me back to my favorite topics of planning, credit-control and bootstrapping. If you do not sign any personal guarantees for your limited company, you personally can be shielded from any fall-out in the business – apart from loosing the business of cause.

Think twice before signing a personal guarantee and losing your limited liability. ST.

Disclaimer: As with any of my readers questions, I do not have all the answers and here on my blog I can only give you some ideas, since I know very little about your small business. If any of you can add anything here do so for the benefit of my reader, who asked the question and everybody else, leave a comment below – I’d be most grateful.

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