As a company Director one benefit of your company’s limited liability status is that your personal assets are normally protected from any claim the company creditors may have against the company. This protection does not exist for sole traders or partnerships.
Your personal assets are yours and the company creditors have no claim against you, just the company.
So why would you ever give up that protection?
Well that is exactly what thousands of Directors do every year. As a requirement for company borrowing a lender may only offer to lend if you, Mr Company Director, signs a Personal Guarantee.
So Mr Company Director what do you place at risk when signing a Personal Guarantee?
Your house; Your planning for your retirement; Your peace of mind? Yes all of this may be placed at risk by signing a Personal Guarantee.
It is interesting to note that the lender owes no duty of care to the guarantor of the loan (that's you Mr Company Director) to explain the details of the Personal Guarantee, at best they are likely to answer any enquiry by recommending that you seek independent legal advice.
So whilst there will often be good reason to sign a Personal Guarantee, after all, it’s your company and you want the best for it, please reflect on what you are putting at risk.
Please also reflect on the little protection the Director has in the unregulated world of commercial finance.
So Mr Company Director, next time your company needs you to put all of your worldly goods on the line by signing a Personal Guarantee ask
... not what can i do for my Company, but what can my Company do for me? ...
But what is the answer?
Your company should at a minimum protect its most important asset, that's you Mr Company Director! It should at a minimum fund your independent legal advice (please get the Personal Guarantee checked out), and where possible the company should fund the purchase of insurance to help protect you in the event the business suffers financial difficulty and the Personal Guarantee is called in.
After all it is only because of you, the guarantor, that the finance is available in the first place. Both legal advice and insurance should be affordable, otherwise you should seriously question the wisdom at putting all of your worldly goods and financial future at risk.
Purbeck Insurance offers Personal Guarantee Insurance to company Directors call 0208 004 7250 for more information.