Avoid Creating Personal Liability for a Business Debt

It is very easy and common for a business owner to inadvertently create personal liability for a business debt. For example, “your business” enters into a contract, but the name on the contract is your personal name rather than your business name.  Another example is when you sign your personal name rather than signing for the business entity.

The proper way to enter into a business contract and ensure that the debt is a business debt and not a personal debt is to follow these steps:

1)Make certain that the name on the contract is the business name as it appears in your articles of organization filed with the Minnesota Secretary of State (if your business is a traditional sole proprietor, then you have created personal liability for a business debt);

2)Sign the document in the name of the business. For example:

SAM’S AUTO REPAIR, INC.

By:  Sam Smith

Its: CEO

CREATIVE THINGS, LLC

By:  Sam Smith

Its: Chief Manager; and

3)Do not provide a personal guarantee for business debt. If you sign as a guarantor, you are now personally liable for the business’ debt.

Spangler and de Stefano, PLLP assists business owners with contracts and leases. Working with experienced business attorneys prior to entering into any contract or lease prevents unintended or inadvertent consequences.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.