Personal Guarantees And Why They Can Be A Legal Minefield

Personal Guarantees And Why They Can Be A Legal Minefield

If you are a business owner or major shareholder of a business, before you agree to and sign a personal guarantee relating to that business, you should seek the advice of a lawyer from, specifically, a commercial lawyer.

At its core, a personal guarantee is basically you agreeing as an individual to pay the debts of another party, namely a business. Ultimately if that business were to fail, owing monies to other businesses, or lenders, if you had signed a written guarantee for any of them, you would be liable for those individual amounts.

At first, it might seem that there is little incentive to sign a personal guarantee, however, it is often the only way in which some businesses are able to raise the finance necessary for them to get started. The choice for a new business owner is often play safe, not have the finance, and not getting the business started, or taking a risk, agreeing to a personal guarantee, and having the money they need to start the business properly.

Ignorance Is Not Always Bliss

It is important that for a business which you own, or for which you are director, that all written contracts are thoroughly checked, not only by yourself, but by your commercial lawyer, if possible. There have been numerous examples of commercial contracts including clauses which meant, when the director signed them, they were in fact signing a personal guarantee.