What to consider before agreeing to sign a personal guarantee

What to consider before agreeing to sign a personal guarantee

When you are a director of a limited company, you have to make some tough decisions. One decision that you may face is whether to agree to sign a directors personal guarantee to establish a professional relationship with a supplier or lender.
There are some key things you must consider prior to entering into such an agreement:

1. You become personally liable for business debts

If your business were to be declared bankrupt, you would be personally liable for settling the outstanding debts with lenders and suppliers. This could result in personal bankruptcy and even homelessness.

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  1. It could affect your personal life

    If you co-own your home, there is a high likelihood that your partner will need to co-sign a director guarantee to give permission for your home to be used as collateral. This is a big risk and should they decide against it, it could impact your personal and professional life.

    3. You cannot absolve your responsibility by resigning

    A director guarantee is assigned to a specific named individual; therefore, even if you were to resign your position as a director, the agreement would still remain effective unless you were able to nominate a new responsible party.

    You should always seek independent legal advice prior to signing a director’s personal guarantee to ensure you understand the long-term commitment you are entering into and the risk you are accepting in doing so. Contact Parachute Law or another specialist to find out more,

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In conclusion, agreeing to a director’s personal guarantee may allow you to form necessary business relationships but it comes with high risk attached. It is vital to ensure you fully understand the terms of the agreement before you sign on the dotted line.

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