In the last blog, we discussed five common legal entities you’ll come across when lending credit. Now, we’re going to outline the level of liability for each entity:
- Individual and personal guarantors: A person who applies for credit, or who signs a personal guaranty of payment for another entity, should be evaluated for credit purposes based upon their personal assets and income. In the event of default on the debt, they are personally liable.
- Proprietorships: The owner of a proprietorship is personally liable for any default on credit terms extended. A proprietor is the owner, and the business isn’t a separate legal entity.
- Partnerships: The owners of a general partnership are personally liable for money owed. Although the partnership entity is a legal entity that may stand alone financially, the general partners (owners) are personally liable to you.
- Corporations: When you sell to a corporation, only the corporation is liable for your debt. The shareholders only become personally liable if they sign a personal guaranty. Exercise extreme caution when extending credit to a corporation.
- Other Legal Entities: State laws allow for a wide variety of legal entities and, as you process credit applications, over time you’ll probably encounter most of them. You may encounter joint ventures, a cooperative venture between two or more legal entities, or the professional limited liability company (PLLC). To protect yourself, evaluate these entities in the same way you would evaluate a corporation.
Need Help from Michigan Collection Services?
No matter what entity you’re dealing with, if they’re not paying, we can help you collect. With our firm, you get a comprehensive package of Michigan-based collection services, including international debt and judgement collection. If you have questions or are ready to place a claim, call (248) 645-2440 or submit a contact form here.
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