Guarantee with own property. What is it and to whom does it apply?
In commercial corporations, there are several ways of guaranteeing the debts and obligations of the company, including the so-called equity guarantee. Who is self-insured in a business and how does it work? Find out in the article.
In legal terminology, liability refers to the performance of another person's obligations; in the case of a corporation, it refers to the obligations of the company. Thus, in a business corporation, any person who guarantees its own assets is obliged to fulfil the company's obligations to its creditors if the company does not fulfil them itself.
This means that if, for example, a company as a legal entity has debts and fails to repay them from the company's assets, the creditor can recover the money directly from the individual who is liable with his own assets.
They are liable with their own property:
- natural persons registered as self-employed,
- partners and managing directors of the LLC (to a limited extent),
- shareholders of a public company,
- general partners of limited partnerships and limited partners (to a limited extent),
- limited liability companies and joint stock companies.
LIABILITY OF AN ENTREPRENEURIAL NATURAL PERSON - OSVČ
Any natural person who carries out a business activity and is registered as self-employed is liable for debts with all his/her assets.
This means that if you incur debts in the course of your self-employed business, you are obliged to pay them in full, even if you use privately owned assets.
This fact can lead many people who choose to pursue a business career into existential problems, so it is important to consider the liability of a sole trader and think carefully about setting up a business before setting up. If you are still deciding which form of business to choose, read this article on the differences between a sole trader and a limited company.
GUARANTEE OF OWN PROPERTY IN S.R.O.
One of the obligations of a limited liability company is the responsibility for the fulfilment of its obligations. The managing director, partner or owner of the company may also be liable for the debts and obligations of the limited liability company (however, the liability of partners occurs only under special conditions, which we will explain below).
HOW DOES A LIMITED LIABILITY COMPANY AS A LEGAL ENTITY GUARANTEE ITS OBLIGATIONS?
As a legal entity, an LLC is liable for its obligations with all of its corporate assets, as stipulated by the new Civil Code and the Business Corporations Act.
In this case, as in the case of a public limited company (and others), the company's obligation to meet its obligations to its creditors is not referred to as the liability of the limited liability company, but as the liability of the company, since the obligations relate directly to the company.
HOW ARE THE MANAGING DIRECTORS LIABLE FOR THE OBLIGATIONS OF AN LLC?
Since 2014, when the new Civil Code and the Commercial Corporations Act came into force, the managing director (statutory body) can only be liable for the company's debts if the company has gone bankrupt and the court has decided on the obligation of the statutory body to guarantee the company's obligations.
The court so determines in cases where the managing director has breached his obligations towards the company and has not acted in accordance with the principles of good management. The statutory body is then liable for the company's obligations with all its personal assets.
The liability of the managing director for the company's debts applies not only to the property damage caused by the statutory body, but also to non-property damage, such as damage to assets (situations where the managing director's error has caused, for example, an increase in the company's debts).
HOW ARE THE PARTNERS LIABLE FOR THE OBLIGATIONS OF THE LLC?
As an owner (shareholder) of a limited liability company, you are liable for the company's obligations only up to the amount of the unpaid share capital. Once you have fully repaid the capital, which you must do within 5 years of the incorporation of the LLC, you are not liable for the debts of the company and your personal assets are protected.
GUARANTEE OF OWN PROPERTY IN V.O.S.
In the case of a v.o.s. it is simple - the partners of a public company are jointly and severally liable for the company's obligations with all their assets, just like a self-employed person.
LIABILITY IN A LIMITED PARTNERSHIP
A limited partnership (LLC ) is liable for its obligations and is obligated to pay its debts like any other business corporation. This performance is limited to the amount of the limited partnership's assets - similar to liability in a limited liability company. However, a limited partnership is made up of two types of partners - general partners and limited partners who share, to varying degrees, in the liability for the limited liability of the limited partnership.
While limited partners are liable for the obligations of the company in a limited manner in time and scope, the liability of general partners is unlimited.
HOW ARE LIMITED PARTNERS LIABLE FOR THE OBLIGATIONS OF A LIMITED PARTNERSHIP?
Limited partners are liable only for their contribution to the limited partnership's share capital, and only for the part that has not yet been paid up - the so-called limited partnership sum (or the unpaid limited partner's contribution). The amount of the limited partner's contribution is set out in the partnership deed at the time of incorporation and is later also entered in the commercial register.
HOW DO GENERAL PARTNERS GUARANTEE THE OBLIGATIONS OF THE LIMITED LIABILITY COMPANY?
The general partners form the statutory body of the limited partnership and are liable for the debts of the partnership with all their assets, including their personal property.
Moreover, this liability is a joint and several liability, which means that the creditor can claim the full amount of the company's claims from any general partner of the limited partnership. The general partners are obliged to guarantee the company's liabilities only when it is clear that the company cannot handle this liability on its own.
NEED SOME ADVICE? CONTACT US!
Guaranteeing your own assets is an area that everyone should consider when setting up a company. If something is not clear and you do not want to take any risks, we will be happy to advise you. Do not hesitate to contact us.