America is the land of opportunity, and immigrants with a vision may be eager to start their own companies. Owning your own company means the potential to make your own choices, work your own hours and answer only to yourself. Owning a company can greatly increase your income if you are successful. If your company makes a profit then you get to decide how to use the money. However, such freedom comes with some risks. One of the biggest risks in starting your own business is the risk of financing; if you take out a loan to start the company, what happens if you can’t pay it back?
To encourage business growth and risk taking, states permit something called “limited liability.” Limited liability means that individual owners of a company are only liable for the amount of money they invested in a company. If the business entity itself accrued debt then individual owners of that company may not necessarily be liable for it. An individual’s liability to a company is a fixed sum and will not grow as the business and/or its debt grow. For example, if a limited liability business is sued or defaults on its debts.
Example: David, a nonresident alien, has a wife, two children, a nice house, and a car. He works at a nice job, but he is ambitious, and wants to start his own company. David can get a loan, but he’s afraid about what will happen if he is not successful. What if he cannot pay the loan back because he makes no profits? Will the bank take his car or his house? Where will his family live if they take his house? Where will his kids grow up?
David should start a company with limited liability. That means that David’s company’s creditors can only reach David’s company and his company’s assets. His house and his car (and his family!) are off limits to his business’s creditors in the event his business fails, expect in very rare circumstances.
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