Personal assets are anything owned by an individual that has commercial or exchange value. Your assets may be at risk when your business is experiencing debt or when it is faced with a lawsuit.
Two things determine your personal financial liability: (1) how you structured your business (is your business a sole proprietorship, partnership, LLC [limited liability company], corporation, etc.) and (2) whether you personally guaranteed or secured any loans or other debts in support of your business. This is why it is important to work with a trusted attorney, accountant, and insurance agent to establish your business structure, financial plan, and liability protection.
You should always consult an attorney about these matters. Generally, if you are a sole proprietor, you and your business are one and the same in the eyes of the law. That means you are personally responsible for all of your business's debts. If there isn't enough money in your business to pay these debts, creditors can and will take your personal assets to pay them.
Partners in a general partnership have similar personal liability for business debts. Each partner is personally liable for the entirety of the business's debts. If your business does not have enough money to pay the debts, and your partners are without funds, creditors can take your personal assets to pay all of the business's debts, not just your share.
If your business is organized as a corporation or a LLC (limited liability company), your personal assets are usually protected from business creditors. Shareholders and LLC members have a form of asset protection called limited personal liability. Creditors cannot take owners' personal assets to pay business debts unless a business owner specifically gives up that limited liability protection.
Using personal assets to fund your business does put you at risk. This situation may complicate personal risks by reducing insurance or retirement benefits or jeopardizing the status of one's primary residence. It is recommended that you work with your attorney and accountant to develop a plan to replace these funds once your business is producing revenue and positive cash flow.
