DEFINITION of 'Internal Claim'

A claim by a creditor that is restricted to the business's assets and not those of its owners. The liability for the claim arises out of the business itself. As long as the business is legally created and treated as an entity separate from its owners, creditors' claims against the business should not reach the assets of the business owners.

BREAKING DOWN 'Internal Claim'

Business owners must work to protect their personal assets from creditors' claims against the business. Following that protection, businesses seek to protect assets that are part of the business itself. For example, a business may be owned by a corporation, while its business property can be owned by a separate real estate trust or limited liability company.

Understanding the nature of claims that can arise out of a business relationship can help business owners and investors determine the appropriate type of business entity to create or invest in. For example, general partnerships and limited partnerships are exceptions to the premise behind internal claims. General partners (of a general partnership or a limited partnership) are liable for the debts and liabilities of the partnership.

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