Trade Finance Forum › Forums › Trade Finance › Companies › If an LLC goes bankrupt and its assets aren’t sufficient to cover its debts, who ends up being responsible for the shortfall? › Reply To: If an LLC goes bankrupt and its assets aren’t sufficient to cover its debts, who ends up being responsible for the shortfall?
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While theoretically, the shareholders of an LLC are not personally liable for the company’s debts, in reality, there is typically someone who is accountable for these debts, or the debts are backed by some form of collateral. For instance, in smaller LLCs, the owner often has to personally guarantee any unsecured credit. Conversely, in larger LLCs seeking to borrow, the company usually has to offer some assets (like property or machinery) as collateral to secure the loan.
An instance where an LLC might incur unsecured debt is through trade credit, where a selling company allows the LLC to purchase goods on terms, fully aware of the risk that they may not be repaid if the buyer goes bankrupt. The seller deems this risk acceptable, considering that offering credit terms enables the purchasing company to buy more goods, potentially increasing sales.
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