What Is an Internal Claim
An internal claim is 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. To help establish that protection, businesses seek to separate assets that are part of the business itself from their personal assets.
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 (LLC). While the owners of an LLC have direct management control over the company, they are designed to separate the business assets of a company from the personal assets of the owners, to help insulate the owners from the debts and liabilities of the 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. In a partnership, the owners manage and control the business. All revenue flows from the business directly to the partners. In this type of structure, the partners are also personally liable for debts and any liabilities that result from the operation of the business.