Who is liable for the debts of a business?
When a business is formed, the owner or owners are responsible for paying the debts of the business. Generally, the owners of a business are referred to as its shareholders. In Maryland, a business is considered a separate legal entity from its owners, and therefore, the shareholders are personally liable for the debts of the business. This means that the personal assets of the shareholders, such as their cars, homes, savings, and investments, can be seized and sold off to pay the debts of the company. The type of business also affects who is liable for the debts. For example, a sole proprietorship is an unincorporated business owned by one person. In this case, the sole proprietor is solely responsible for the debts of the business. If the business is a partnership, the partners are jointly and severally liable for the debts. This means that each partner is individually responsible for all the debts of the business; if one partner does not pay, the other must pay it. If the business is a corporation, the shareholders are not liable for the debts of the corporation. The only assets of the corporation that can be used to pay the debt are the assets owned by the corporation. The shareholders are not personally liable for the debts of the corporation. In summary, who is liable for the debts of a business depends on the type of business. If it is a sole proprietorship, the owner is liable; if it is a partnership, the partners are jointly and severally liable; and if it is a corporation, the shareholders are not liable.
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