Personal Guarantees explained and witnessed by a lawyer.

What’s the difference between a Personal and Corporate Guarantee?

They’re basically the same thing except the liability is passed on to a corporation instead of an individual person. A Personal Guarantee makes an individual liable for another individual’s or corporation's debts, whereas a Corporate Guarantee allows a corporation to take the liability as the guarantor for another corporation or individual.

Can I limit my personal liability?

Yes. Although a Personal Guarantee often makes you responsible for the entire debt, in some cases, your guarantee may be limited to a certain financial amount, time period or specific liability. Some lenders might have formulas for calculating limits, and others might not allow limits at all. Every situation is different so discuss it with your lawyer if you think it might apply to your Personal Guarantee.

What happens if the debtor defaults?

The terms of your Personal Guarantee will be unique to your situation, but several things could happen when the debtor defaults. First, your credit could be negatively impacted which could affect your ability to secure financing later. Second but not always, the lender may initiate the seizure of any collateral or deposits, or the lender may initiate other legal actions. Finally, You may be required to repay any outstanding debts to the lender, plus any late fees, interests, and other penalties as outlined in the terms of the loan and/or guarantee.

What happens if I default on my guarantee?

If your debtor defaults, and then you default too, your lender may likely take legal action against you. The lender can sue either the entity you guaranteed, or yourself as the guarantor and may have a good chance of recovering or taking possession of your personal assets. Depending on the clauses in your Guarantee, you might even need the lender’s permission before selling any of your personal assets throughout the guarantee. Needless to say, it’s not a good situation so don’t sign a Personal Guarantee if you think there’s a high chance of you or the debtor defaulting.

Is the Personal Guarantee legally binding?

Yes, absolutely. So long as the document has been properly drafted and does not include and clauses that invalidate it, your Personal Guarantee is a legally binding document. Getting a good lawyer to explain and draft your Personal Guarantee is highly recommended.

Who should sign a Personal Guarantee?

Often owners and shareholders of a Corporation may sign a personal guarantee on behalf of their Corporation. Other times, it may be members of an executive management team who sign a personal guarantee for the company. It is also often helpful to have a clear picture of the company or individual’s plans and finances when considering signing the Personal Guarantee. Of course, every situation is different and there are exceptions so make sure you discuss it with your lawyer if you have doubts.

Do I need a lawyer in my province?

For most business law questions the answer is “no”. For employment and commercial tenancy related issues, it’s best to speak to a lawyer who has experience in your province. Goodlawyer has lawyers all over Canada with diverse experiences and specializations. If your lawyer doesn’t think they can answer your question due to a provincial issue, Goodlawyer will find another Good Lawyer who can help you.

Can I negotiate my Personal Guarantee?

In most cases, the Personal Guarantee is provided by the lender, which is usually a large financial institution. It's very difficult to negotiate these standard contracts that the lenders use, but it's not impossible.

Does this service cover drafting a Personal Guarantee?

No. This service only covers the review and notarization of a Personal Guarantee that has been provided by a lender. If you need a Personal Guarantee drafted from scratch, book a call with our Legal Concierge team to get a custom quote started.