The investor’s field guide · P
Personal guarantee
A commitment making an individual responsible for specified business obligations if the agreed conditions for liability arise.
Explained by the editorial team
A personal guarantee can make an individual liable for a company’s borrowing or another obligation. It creates exposure separate from simply owning shares in a limited company. The extent of that exposure depends on the wording, any cap, security and governing law.
An illustrative situation
A lender advances funds to a company and asks a director to guarantee repayment. If the conditions for enforcement arise, the lender may pursue the individual under the guarantee. Selling the shares or leaving the business does not necessarily release it.
What to examine
Check which debts are covered, how liability ends and whether future borrowing is included. Understand any indemnity alongside the guarantee and obtain independent legal advice before signing. A business forecast cannot establish the full personal consequences of default. The British Business Bank’s guide explains the UK context. Requirements and enforcement differ across jurisdictions; do not assume another borrower’s arrangement matches yours.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.