Personal Guarantee for More than One Owner

Business owners are frequently asked by a creditor to personally guarantee the obligations of the company. These personal guarantees are promises to repay the credit issued to one’s business.

One common question about these guarantees arises in situations where there are two or more owners. If you are held liable to pay on a personal guarantee, you may wonder if you have recourse to have the other owner(s) pay their share.

Liability

Where more than one owner is asked to sign a personal guarantee, the agreement will generally provide that each owner who signs is “jointly and severally” liable on the obligation.

This language protects the creditor because each individual guarantor who signs is liable to the creditor for the entire obligation. Accordingly, in the event of a default, the creditor may choose to hold one or all of the guarantors liable for the entire obligation.

If you are held liable, you may have recourse against your fellow owners if they also signed the personal guarantee.

What Happens When a Co-Owner Doesn’t Sign?

Some situations prove more complicated, such as in the case of a co-owner failing to sign or confusion about how much each person must pay.

As an example, let’s say that a company is owned 70% by Person 1, 20% by Person 2, and 10% by Person 3. Imagine that Person 2 and Person 3 sign a personal guarantee for the company’s line of credit, while Person 1 fails to sign.

Now imagine that the company defaults, and the bank sues only Person 2 for the entire balance, simply because they are easy to get to and have money. Without a written agreement, Person 2 may be out of luck.

This is why having a safety net is important; it is an agreement among all owners compelling each of them to share in a liability incurred for the benefit of the company.

Signing an Agreement

A solid solution is an agreement among all owners that states that each owner must share liabilities taken on for the company’s benefit and outlines how much their contribution should be. It should clearly explain when owners can seek repayment from each other for a personal guarantee, whether interest applies when someone does not pay right away, and when distributions can be withheld or redirected to repay the person who had to cover the debt.

In the example above, it might say that Person 2 is liable only for 20%, with Person 1 being liable for 70% and Person 3 for 10%. This gives Persons 2 and 3 the right to get reimbursed by Person1. In the absence of such an agreement, an owner who had to pay on the personal guarantee may find themselves in court deciding what is “equitable.”

This type of agreement can also cover a situation when you loan the company money but the company cannot repay it. This can be treated like a guarantee.

Owner Departure

Finally, business owners should be aware that liability to a creditor pursuant to a personal guarantee is not automatically terminated when they cease to be an owner of the company. A personal guarantee is a binding contract between the guarantor and the creditor and is governed by its own terms.

There should be an agreement between owners to address the removal of owners as personal guarantors of company obligations when they cease to be owners.

Help from MKP Law

Our professionals are happy to offer legal counsel for your business and answer questions you might have about personal guarantees.

02 Mar 2026