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Business Debt/Personal liability for corporate debt
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Question
We have a small business which is incorporated and have been experiencing financial difficulty. We owe one of our previous suppliers money, and have paid half of it over the last year or so, in monthly payments. We have not been able to make any payment over the last three months, and they are threatening legal action. We never signed any of the agreements that were on the estimates when we originally ordered product, but did send a letter stating that we would attempt to pay a monthly payment of x$. What personal and or corporate liability do we have?
Thank you
Anna
Your question is a legal one as well as a financial one, and I want to begin by saying that I am not an attorney. Your continued payments on this obligation indicate your acceptance of the contractual amount requested for the products and/or services, so the lack of a signature (either physical or electronic) does not change the obligation. The letter that you sent arranging for a payment plan further reinforces your acknowledgment of the amount owed.
However, their continued acceptance of the payments that you were sending works in the same way. You made an offer (monthly payments of $X) and the fact that they have continued to accept that money indicates their acceptance of that offer, just as your continued payments indicate your acceptance of the products/ services.
In most cases, this is a corporate debt (or LLC, etc).
However, if you sent personal checks to pay for it, that could change the picture. Your personal liability could also depend upon the contract itself and any guarantees that it contains, as well as other actions that might have “pierced the corporate veil.” Other conditions can impact the decision including the products/services in question and/or the amount in dispute.
If you still have the contract, you should check to see what conditions it contains:
Personal Guaranty? - if so then it is both a personal and a corporate debt
Arbitration? – if so, then they most likely cannot sue you, they also agree to submit to arbitration.
Best of luck,
Michael
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Answers by Expert:
Michael Fay
Expertise
My focus and specialty is in credit, so that the risk of the debt itself is minimized. This means understanding it, predicting it, and helping to correct it. Having worked in contracts & credit, I have also worked with all of the related documents such as Guarantees (personal and corporate), and Security Agreements (aka UCC’s or “liens” – but I caution you in using those interchangeably).
Experience
I have a broad background with more than 15 years in the credit industry. Ten years with Dun and Bradstreet, first as a field reporter creating reports, then in customer service, finally I served as the credit manager designing risk models for many national and international customers through D&B’s Outsourcing function. Five years with another publicly traded firm where I created the credit department and then served as credit manager for North America. At both companies we used both business and consumer data.
You probably know that both business and personal credit have scores; what you might not know is how many different types of scores there are. I am familiar with and have used many different scores in each. Also be aware that each credit type (business & personal) is unique with different processes and different time frames.
I have served on the board of directors for companies in many states and still serve in some capacity in a few. I contribute to credit publications and work with the non-profit arm of the SBA called SCORE.
Organizations
ACA International * NACM * Credit Risk Managers * SCORE (SBA)- Counselors to America’s Small Business * Payment Card Industry Network * PaymentSource.com * D&B Alumni * Psi Chi, National Honor Society for Psychologists
Education/Credentials
BIS in Business and Psychology, University of Minnesota * MBA is still in progress (on-line)
Awards and Honors
State of Colorado - State finals in Accounting and Advanced Accounting. * D&B Leadership Winner (3 times) * D&B Leadership Finalist (3 times) *
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