Within companies, there are several types of guarantees for the receivables and liabilities of the company, including so-called personal guarantees. The guarantee is indicated in the legal terminology of the fulfilment of obligations of another person, i.e. in the case of business corporations, the given company. Within a company, therefore, any person who makes a guarantee using their own property is obliged to fulfil the company's obligations to creditors, if the company does not fulfil them itself.
WHO DO PERSONAL GUARANTEES APPLY TO?
Personal guarantees may be used by:
- • all natural persons who are self-employed,
- company shareholders,
- public business partners of a company,
- general partners of limited partnerships,
- limited liability companies and joint-stock companies.
PERSONAL GUARANTEE IN A LIMITED LIABILITY COMPANY
A limited liability company is a subject of law, and as such has certain rights and obligations. One of the obligations of a limited liability company is liability for the fulfilment of its obligations. A limited liability company is responsible for a breach of this responsibility and non-fulfilment of its obligations with all its corporate assets, as stated in the New Civil Code and the Business Corporations Act.
In this case, as with a joint-stock company (and others), the company's obligation to fulfil its obligations to creditors is not referred to as the company's guarantee but as the company's liability, as the obligations relate directly to the company.
SECURING THE LIABILITIES OF THE STATUTORY BODY OF A LIMITED LIABILITY COMPANY BY MEANS OF A PERSONAL GUARANTEE
The executive director, shareholder or owner of the company may also be liable for the receivables and liabilities of the limited liability company. This liability of the shareholders occurs only under special conditions.
Since 2014, when the new Civil Code and the Business Corporations Act came into force, the executive director and another statutory body of the company can be liable for the company's obligations only if the company has gone bankrupt and the court has ruled on the statutory body's liability for the company's obligations. The court shall determine this in cases where the executive director or other statutory body breaches its obligations to the company and did not act in accordance with the principles of due managerial care. The statutory body is then liable for the company's obligations with all its assets.
The liability of the statutory body applies not only to property damage caused by the statutory body, but also to non-property damage, such as damage to assets, i.e. (a situation where the statutory body caused, for example, an increase in the company's debts).
PERSONAL GUARANTEE OF SELF-EMPLOYED PERSON
Every person who carries out business activities and is a self-employed person is liable for their receivables with all their property.
This means that if debts arise in the course of the self-employed person's business activities, the self-employed person is obliged to pay these debts in full, even using assets that are in their private ownership.
This can create existential problems for many people who choose a business career, so before getting a trade licence, it is important to consider the liability of a self-employed person and think carefully about establishing a trade.
GUARANTEES IN LIMITED PARTNERSHIPS
A limited partnership is itself liable for its obligations and is obliged to fulfil its claims (like all other companies). This fulfilment is limited to the amount of the limited partnership's assets – similar to the liability of a limited liability company.
A limited partnership consists of two types of partners – general partners and limited partners, who participate to varying degrees in guaranteeing the liabilities of the limited partnership.
While limited partners are liable for the company's liabilities in a limited time and scope, the general partners' liability is unlimited.
The liability of limited partners is only up to the amount of their contribution to the limited partnership, which has not yet been paid-up (the so-called limited amounts, or the unpaid limited contribution of the limited partner). The amount of the limited partner's contribution is determined upon the establishment of the company in the memorandum of association and later in the Commercial Register.
The general partners, who form the main statutory body of the limited partnership, are liable for the company's receivables with all their assets, including assets in their personal ownership. In addition, this liability is joint and several, which means that the creditor may demand the fulfilment of the company's receivables in full from any general partner of the limited partnership. General partners are obliged to guarantee the obligations of a limited partnership only when it is clear that the company itself will not be able to handle this responsibility.
A personal guarantee is therefore something that everyone should consider when establishing a company. In case you need advice on the topic of personal guarantees, please do not hesitate to contact us.