Under Oklahoma business law, a business owner can be personally liable for business debts, or responsible, for the debts of a business in certain cases. For most people, this is a frightening thought — the idea that you could be personally sued and potentially lose valuable items like your car or even your home, just because your business owes money to someone, should cause you to think carefully about how you operate your business. Fortunately, though, there are steps that you can take to decrease the risks that you will be found responsible for the debts of your business.
Organize Your Business Right
The first choice that can determine whether you will be personally liable for business debts of your business is the form of your business. Some business organization forms are designed specifically to provide maximum protection against just such a case, while other business organizations make it much more likely that business debts will stay with you, the business owner.
In general, the corporate business structures that are allowed by law will provide you the best shield against personal liability for business debts and responsibilities. There is the corporation, which is the most complicated business form in many ways, with strict requirements to file mandatory forms and other reporting requirements. Similar business structures are less complicated, but offer similar personal protection, including the Limited Liability Company (LLC) or a Limited Partnership.
The types of business forms that are more likely to lead to personal responsibility for business debts are sole proprietorships and partnerships. In both cases, courts and other people tend to treat you and the business as equally responsible for the business. If the company is sued in a construction disputes or any other kind of claim and debts are owed, it is likely that a court will find you personally liable in a case where your business can’t pay all of its debts.
Run Your Business Well
Even with an LLC that is designed to shield you from personal liability for company debts, though, there are some actions that you can take that will make you personally responsible for the results, such as:
● Knowingly doing actions on behalf of the company that are against the law, are fraudulent, or are excessively dangerous or reckless.
● Personally causing direct personal harm to someone in the course of doing your business.
● Signing loan or other financial documents with a personal guarantee.
● Conducting serious accounting irregularities, like not depositing the taxes that you’ve withheld from the wages of your workers or taxes you’ve collected from customers, for example.
A key factor in whether you are likely to be held responsible for the debts of your business is how you operate the business. Even if you’ve organized your business properly to try to avoid personal liability for debts of the business, and have a limited liability company or corporation, there are ways that you can become personally responsible for the company’s debts and responsibilities. If you treat the company and its resources as if they are your personal property, the court has power to “pierce the corporate veil”, which means they can ignore the legal fact that a corporation is a separate “person” from you, and they may find you to be responsible for the company’s debts.
Tulsa Oklahoma Business Attorney
The business law attorneys at Kania Law Office know about the complex laws surrounding the liability of business owners for the debts of their business. We can help you figure out what protections apply to you, and what you should do about your situation. To learn more about your rights as a business owner and how to minimize your risks, touch base with Kania Law Office by calling (918) 743-2233 or by contacting us online.