When you form a business in The Bahamas, you should consider how to limit your personal liability in case of a legal claim. It is very risky to assume that you will never face personal financial consequences related to your business. Choosing a business entity that limits liability is a good way to lower your risk.

Why Would You Be Personally Liable for a Business Debt?

Depending on how you structure your business, creditors may be able to access your personal financial resources to satisfy a debt owed by your business. For example, if you run a small business as a sole proprietor, you have no liability protection at all. The business is registered under its own name, but you must pay all of its debts. Creditors will come after you if your business has overdue bills.

Similarly, partners in a general partnership are liable for the partnership's debts. You may agree with your partners that the amount of your liability is proportionate to the value of your share in the partnership. If the partnership owes money, creditors will seek to use your personal assets to satisfy the debts.

Which Kinds of Business Structures Limit Liability?

You have several choices of business structure that provide some protection against personal liability for business debts. For example, you could choose to form a limited liability company. Members of a limited liability company are liable only for company debts up to the amount of their individual investment in the company, or up to another agreed-upon amount.

In a limited partnership, some partners have significant personal liability for partnership debts. These are called general partners. Limited partners, in contrast, are only liable up to the amount they invest in the partnership. Of course, if you want to be a limited partner, you need a partner willing to take on the possible personal liability.

Alternatively, you could form a segregated accounts company. A segregated accounts company (SAC) has a series of accounts, each of which holds one or more assets. The accounts are separate, so creditors of an asset held in one account cannot access an asset held in another account to satisfy the debt.