Choosing whether to make a directors guarantee is a big decision. There are potentially significant implications for the finances not just of your business but for you personally. As such, many people would consider it advisable to consult with a solicitor first to ensure they fully understand the terms of the arrangement.
What Is a Director’s Guarantee?
A director’s guarantee is a promise by the director of a company that if their business is unable to repay a creditor, they will be personally responsible for settling the debt. It is a form of extra security for the creditor, who will receive extra reassurance that their money will be returned as specified in the loan agreement. The exact nature and terms of the guarantee may vary.
Why Would You Need Legal Advice?
Many people try to complete important legal documents and processes themselves without consulting with a solicitor. This may be because they do not think the arrangement is that complicated or because they are trying to save money. However, if they do not have legal expertise, this can lead to them overlooking important details. For something like a director’s guarantee, this could mean you miscalculate your degree of liability. You could end up owing more than intended or misunderstanding your repayment terms. In these situations, experts such as those at https://www.samconveyancing.co.uk/news/conveyancing/directors-guarantee-the-risks-of-personal-guarantees-by-directors-9999 could be of use.
One area in which legal advice could be particularly important is to establish whether your guarantee will be limited or unlimited. A limited guarantee caps the amount that you will be eligible to pay. Even if your company owes more than that cap, you will only be expected to cover up to your limit. For an unlimited guarantee, you could be liable for the entire debt, and the creditor could pursue you for all of it, regardless of the amount.
There are other areas where professional legal advice may be useful for providing clarity. For instance, you could only agree to cover a specific financial obligation for your company – not all of its debts. A solicitor can make the full extent of your responsibilities clear and help define situations where you will not be expected to repay any monies. Again, this will stop you from being made liable for all that your company owes, but instead only those parts which you choose.
It is possible to take out a directors guarantee without consulting with a legal professional, but if you want to be absolutely certain of your rights and responsibilities and to ensure there are no surprises or unexpected loopholes that leave you liable for more debt than you intended, then it may be wise to take legal advice first.