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Effect of personal bankruptcy on start-up?

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mclahdidah

Junior Member
What is the name of your state? California

I'm starting a home/internet business (epublishing) on a shoestring budget with three partners. In the course of our discussions, it has come out that one of the partners - who is contributing considerable services as well as some money (approximately $500) - is likely to be facing personal bankruptcy in the next year. Due to the service contributions she is making, it is unlikely that we would be able to go forward without her participation. Our questions revolve around how a personal bankruptcy by a partner would affect our start-up:

- Would filing for personal bankruptcy mean she would have to forfeit her part of the business? Would it make a difference if we formed a general partnership or a limited liability company (i.e. would one option provide more protection than the other)?

- Would it be better to hold off formation of the company or partnership until after her bankruptcy has gone through, or would that make things more difficult?

If it makes a difference, we are not taking out any loans but are funding this ourselves. If there are any factors I have not addressed, I'd be more than happy to do so.

Thank you in advance for your time and consideration.
 
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