personal guarantee

What is the name of your state?Missouri

i got a strange question....what would happen, legal or otherwise if i had just started a business and i had a friend join me as an employee. however, he is just getting paid upon doing certain things. he hasn't filled a 1099 or a w-4, he is just doing this as a friend. now, if he signs a personal guarantee to secure us a loan or lease or whatever the case may be. what would happen to him if the company doesn't fulfill payment even though he isn't legally an employee? i assume regardless of that, he is still liable? also, what could be done to reaffirm the loan or lease, etc. in my name or possibly the company's name if that is possible? i suppose that may depend on the type of business? i heard about corporate guarantees can be used instead of personal guarantees?

thanks in advance.

collins

Doesn't matter...

It probably doesn't matter whether you incorporated as an S, a C, an LLC or even operate as a sole prop, almost all lenders and credit card companies will require a "personal guarantee" for any debt associated with a small start up company. Whoever guarantees it...is responsible for seeing it gets paid. If the company goes out of business, that person gets socked for the debt...

The only exceptions to this might be office supply stores, printers, equipment leases, that sort of thing...

When you get to be a big company, the rules change....

really? can i ask why would the rules change? i mean i kinda figured that whoever may sign is liable, but what about the other questions posed? reaffirming it in either another person's name or corporate guarantee? is it that simple or what?

thanks

collins

rcollins said:

really? can i ask why would the rules change? i mean i kinda figured that whoever may sign is liable, but what about the other questions posed? reaffirming it in either another person's name or corporate guarantee? is it that simple or what?

thanks

collins

Click to expand...

The rules change because once a company has credit established and becomes a "going concern" the creditors no longer insist on personal guarantees.

Once someone has given a personal guarantee, a creditor is unlikely to let them off the hook.