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Can I Lose My Personal Property If My Business Is Sued?

by | Apr 21, 2022 | Business Formation

There are two types of business owners. The first type doesn’t know that their personal property could potentially be at risk if their business is sued. The second type is constantly worried that something could go wrong in their business and that they could lose their personal property as a result of a business-related lawsuit.

The truth is that yes, you can lose your personal property if your business is being sued. However, the odds of this happening are slim if you operate your business in the proper manner.

How business owners may put themselves at risk

I’m Neil Fridman, with the Fridman Law Firm. Today, I want to highlight the most common ways in which business owners put themselves at risk of losing their personal property in a lawsuit against their company. Let’s start by discussing personal wrongdoing.

The main benefit of setting up a legal business entity

If you’ve watched any of the videos on our channel or read any of our blog posts, you know that one of the main benefits of setting up a legal business entity is to shield your personal assets from potential business debts and lawsuits.

No protection from negligence

This, however, doesn’t protect you or your business from your own negligence. Countless business owners have lost personal property after being sued for negligently injuring someone while driving a company vehicle or for lying on a loan application. So yes, your business shields your personal property from a lawsuit, but this protection can be eradicated by your own actions.

Commingling personal and business finances

Another common way business owners expose their personal assets to lawsuits is through commingling their personal finances with those of their business. This applies if you use your business income to pay your personal expenses or use your personal credit card for business purposes.

Either way, you’re treating your company as an extension of your own finances, and a court may rule that you and your business are one and the same. This means that you may be held personally liable for any judgments levied against your business.

Personally guaranteeing a business loan

But perhaps the most obvious way to expose your personal property to a business lawsuit is by personally guaranteeing a business loan. If your business fails to pay back the loan in full, a creditor would be able to sue your business and reach your personal assets.

Your actions in your business are the biggest risk factor

Ultimately, your actions in your business are the biggest risk to your personal property. If you operate your business within the law, the possibility of your personal property being exposed to a business lawsuit is relatively small.