If a business partner uses his personal credit card for business expenses who is responsible for debt?
This is a very popular question we often are asked. If a business partner uses his personal credit card for business expenses, whose responsible? It’s a huge issue. The answer is it all depends. Unless you set it up where the business partner is personally liable for his, or her, debt, then you are out of luck.
The person who signed for the card is the one liable for the business expenses. In the event your business partner uses his personal credit card for business expenses, it should be his/her duty to be responsible for the debt.
In the event this business partner decides not to pay his/her respective debt, this could end up becoming a financial and legal issue.
Technically, the lender can come after whoever signed the personal guarantee on the paperwork for the credit card.
Are you personally liable for your business’s debts
If you’re having trouble paying your bills, you may be worried about whether creditors can come after your personal assets. For example, can a creditor raid your personal bank account?
If you’re a sole prop, or partnership, you and your business are legally the same. It means you owe every penny the business cannot pay. If your business doesn’t have enough cash or assets to pay the debts, the creditors CAN and sometimes WILL take your personal assets.
If your business is a corporation/LLC, you and your business are separate entities. You could have no personal liability for the debts of the business. It means creditors can’t take your house, or other assets to pay the business debts.
Did you sign a personal guarantee?
Because most banks/suppliers know that shareholders/LLC members don’t have a personal liability for the corporation – they won’t extend credit to a small LLC or corporation with the owner signing a personal guarantee. If you signed a PG for a loan, or contract, or credit card, then you are personally guaranteeing you’ll repay the debt. You are volunteering to let the creditor sue you, to take your personal assets, if the business is unable to pay the debt.
Did you sign a contract in your own name?
You may have given up your limited liability if you signed a purchase agreement/service contract in your own name. Sometime,s agreements display the personal name of the business owner without the name of the corporation. If you signed an agreement in your personal name, and not on behalf of the corporation, you’re personally liable for the debt.
Fraud, or misrepresentations
If you misrepresented, or lied, about any facts when you were applying for a loan, you could be held liable for the debt. If you failed to maintain a legal seaparation between you and your business, then creditors could try to hold you responsible.