Personal liability

Definition

Personal liability in business and finance refers to the legal responsibility of an individual, often the owner or operator of a business, for the debts, obligations, and liabilities of that business.

What is personal liability?

Personal liability means that the individual’s personal assets, such as their home, savings, and other possessions, may be at risk if the business is unable to meet its financial obligations. 

Choosing the right legal structure for the business is crucial for achieving personal liability protection. Also, following legal and regulatory requirements, maintaining accurate financial records, and adhering to corporate governance practices are essential for maintaining personal liability protection.

Example of personal liability

John, a small business owner, guarantees a loan for his business using his personal assets as collateral. If the business fails to repay the loan, John is personally liable, meaning his personal assets, such as his home or savings, could be seized to satisfy the debt.