14 February 2017
What is a personal Guarantee?
A personal guarantee is a written promise to guarantee the liability of one party for the debts of another party. Commonly, personal guarantees are given by directors and shareholders of companies to personally guarantee the payment of money or obligations on behalf of their company.
How to secure your business?
In addition to your businesses contracts, personal guarantees provided by your customers, contractors or suppliers can be essential security to your small business.
This is exceptionally useful when it comes to enforcing a debt owed to your business as it allows your business to pursue the director of the company for all debts owed by that company. There are numerous benefits to obtaining a personal guarantee from a director of a company; those being:
What is essential to ensure a binding personal guarantee?
There are a number of things that are important to ensure that the personal guarantee provided is a binding guarantee:
What to be aware of if you are signing a personal guarantee on behalf of your company
While it is essential to ensure your business’ process by creating a rock solid personal guarantee document for customers, contractors and suppliers to execute, there might come a time where you will have to sign a personal guarantee guaranteeing the obligations of your own company to another contracting company. Many people tend to sign personal guarantees on behalf of their company as part of the usual contracting process and they do not think twice. This can sometimes leave you being personally liable on behalf of your company, and you might not even know it!
To protect yourself when signing business documents, it is recommended that you read and understand every document you are signing and if you do not understand you should seek legal advice.
With respect to signing a personal guarantee, there are a few items that you should look out for so that you know you obligations under the personal guarantee:
A several guarantee is when there may be more than one guarantor signing the personal guarantee (for example, a second director). In this instance a several guarantee would make each director separately liable for the debts of the company, dependant upon the terms of the guarantee.
A joint and several guarantee means that each guarantor (usually the directors of your company), are liable, both separately and jointly, for the full debt owed by your company and you will not be liable for 50% of the debt if there are two guarantors; you will be liable for the whole of the debt.
Normally a personal guarantee secures a company by stating that the guarantor will be liable for “all monies” due and owing by the primary contracting party. However, the term “all monies” is quite broad and in essence could apply to anything. It is suggested that you negotiate and understand this term with the company you are contracting with and arrange the negotiation of what “all monies” means in writing so you are sure about the limitations of your liability.
If you are a small business owner and require expert assistance with preparing a rock solid process for your business’ contracts and guarantees, or you are regularly engaging in contracts on behalf of your company, and you have legal questions regarding your rights under a personal guarantee, contact JHK Legal and we can provide you with a tailored written advice to your needs.
Additionally, if there is anything further that JHK can assist you with that is not related to personal guarantees, please do not hesitate to contact any of our offices.