Finding the responsible party for a debt is a lot like finding your way to a new destination. You first need an address or at least the name of the city and a good map or GPS.
For a commercial collector, knowing the legal entity of the debtor is like knowing the address or city, metaphorically speaking. NOT knowing the legal entity would be like trying to find your way to your destination with no address or city, much less a map or GPS. Why? Because the legal entity describes the business formation of a company: a proprietorship, partnership, or corporation and that will determine responsibility.
In the simplest terms, when collecting a debt, you either call owners to remind them that they are personally obligated for a debt OR you call the business in general, knowing that there is only business liability.
In a proprietorship, there is full personal liability and a sole proprietor cannot sidestep that fact. General Partners of a Partnership are personally liable in the same manner that sole proprietors are liable. They can and will be held personally liable for contracts leaving their personal assets at risk to satisfy a debt. This is not true, however, with regard to limited partners.
Corporations involve no personal liability … although there are a few exceptions. Sometimes top officers will personally guarantee business debts and some guarantees may contain restrictive provisions like a limit on dollar amount or the time allotted to collect.
Who is ultimately responsible can be complicated when it comes to corporations, which is why it’s absolutely necessary to know the legal entity right from the get-go.