If a person says they are worth $10 billion but they own a US company that is privately held, (making it a pass-through entity) and that company owes $20 billion, how is that person allowed to say they are a billionaire? Thank you. Btw: this is an ACCOUNTING question, not a POLITICS question.
In: Economics
Just because your business is privately held does not mean you share the liability of the corporation, it just means that you earn the profit as the shareholder, you own 100% of the stock instead of a pool of people, so you get 100% of the dividends. If a company with 1000 publicly traded stockholders has debt, those stockholders don’t carry the liability if the company. The whole purpose of creating a legal company is to keep the business liabilities separate, so you aren’t on the hook if the company goes under. The exception to this would be if you, as owner, personally guaranty the debt. This allows creditors to sue and seize assets of the guarantor if the company fails to pay. Those personally guaranteed debts are factored against your personal net worth in credit decisions.
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