In general, corporations exist to shield company owners from responsibility. Contracts and business transactions entered into solely in the name of the corporate body do not subject the individual to personal liability. The majority of lenders, nevertheless, are aware of it and frequently need a personal guarantee in order to obtain company credit. For instance, a lot of merchants now include a guarantee like this in their credit application. As a result, when the application is approved, personal accountability is attached to the debt.
Additionally, the majority of business credit cards are based on contracts that stipulate that both the corporate entity and the person requesting credit on the company’s behalf are referred to as the borrower. As a result, as opposed to primary liability and a guarantor, such obligations include shared liability.
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Finally, some debts impose legal individual responsibility. The most typical illustration is a trust fund tax. Taxes collected through trust funds are those for which the business entity’s accountable person serves as a trustee for the state or federal government. The great bulk of these taxes are state sales taxes and employer withholding taxes. The sum that was not paid to the government body would be assessed to the person who is accountable.
It is strongly advised that when a firm is having trouble paying its obligations, the owners consult with knowledgeable debtor counsel to ascertain the amount of any potential personal culpability and the potential exposure of any personal assets. Existing assets might not be changeable, but knowing the extent of personal exposure is crucial to choosing the appropriate course of action—negotiation, debt defence, or bankruptcy.