The word "limited" in connection with a company describes one of it's main defining features - limited liability.A company exists as an entity in its own right. The shareholders of a company are the person or persons who own shares in the company. This is where limited liability comes in - a company's shareholders are not personally liable for the company's debts and liabilities. This is in contrast to say a partnership where the owners, the partners, are personally liable for partnership debts. In the case of shareholders of a company, the only liability they may have to pay is any unpaid money owing on their shares.What can a creditor do to avoid its company debt being ignored? This is where the use of the personal guarantee becomes important.
In most cases creditors supplying goods or services to a company on credit will only do so if a personal guarantee has been given by a director or shareholder of the company. A personal guarantee successfully erodes the limited liability as the person who has given the personal guarantee can be sued personally if the company fails or refuses to pay its debts.
CollectIT recommends that before any credit is extended to a company you ensure you have a personal guarantee in place with a director or shareholder. If they refuse to personally guarantee their companies debt, then you may re-assess issuing credit to this client. A suitable check into the creditworthiness of the person providing the personal guarantee is also recommended. CollectIT can carry out these credit checks for you.
