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Question
Are the owners and the officers personally responsible for a debt incurred by the corp and can the owner and officers be reported to a credit agency because of this debt ?. Will this debt affect their credit reports ?.
James,
The answer depends. You will need to check the terms of the contract under which the debt was incurred. There may be provisions that cover personal responsibility. Was a personal guarantee signed for the debt? If so, then the answer is absolutely yes. Also, if a UCC was filed with the state for certain assets represented by the debt and that UCC lists both corporation and one or more individuals, then there are one or more documents that indicate personal responsibility.
Generally speaking, if a social security number was not provided (or other personal information to identify a specific individual), then the ability to transfer the obligations from a corporate entity to an individual person is limited.
The most notable exception to this is if your corporation was not in good standing. If the status of the corporation lapsed during any of your dealings with the party to whom the obligation is owed, then you do not have a corporate shield to hide behind and personal responsibility kicks in. The legitimacy of the corporate shield can be challenged even if the status did not lapse and you should seek legal counsel to discuss those conditions if in fact such a challenge is being made.
There are certain state provisions that can make this question even less clear cut, and you might want to seek legal assistance to review those.
If the debt was reported to one or more of the credit agencies, they are supposed to be able to prove that the obligation exists. However, the responsibility is YOURS to find the report and challenge it in order to have it removed.
I know you probably wanted a black and white answer, but there are many variables that can have an impact. I hope that this has given you a good overview of the situation.
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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