Operating a business as a separate legal entity reduces personal financial liability.
Most businesses operate as entities that are sole and separate from their owners, The business entities --- such as limited liability companies or corporations --- personally protect entrepreneurs in the event a company experiences financial problems.
Types
Businesses experience many types of financial problems. A company with limited working capital may find it difficult to pay bills, or business owners may use credit cards and loans to pay for expenses such as product inventory or employer salaries. Overextending business credit is a major contributor to business financial problems.
Benefits
Operating a business as a separate legal entity benefits the business owner by protecting his personal assets. If a company is experiencing financial trouble, a business owner is not personally liable for the debt obligations of the company. The personal assets of the entrepreneur do not pay for judgments or other legal claims against the company.
Prevention/Solution
Keep personal and business finances separate. Create a working spending plan, and organize all business financial and spending records. Establish credit solely in the name of the business and open accounts that do not require a personal financial pledge from the business owner to secure the credit.
