Legal Question in Business Law in Ohio

Limited Liability with Guarantee

My husband (10% partner) and a partner (90% partner) formed a LLC and are purchasing a building and business through land contract. The land contract agreement states the purchase price, but upon default, they will pay a small sum of money and return the building. There is a separate document title Joint and Several Guarantee that states that they guarantee to fulfill the contract, but with no mention of only the small sum. The lawyer for the seller says that it is standard. But I've read that a personal guarantee voids the limited liability status of the purchase company and we (signing the guarantee) will be personally liable. My name is not on the purchase contract, however, they require me to sign the guarantee. I have nothing to do with the company. Is this normal? And shouldn't the guarantee at least specify that the guarantee is only for the small sum, and not the entire purchase price?


Asked on 7/13/09, 3:54 pm

2 Answers from Attorneys
Elizabeth Schmitz Elizabeth S. Schmitz Attorney at Law

Re: Limited Liability with Guarantee

You should have an attorney review the personal guaranty. A personal guaranty can subject your personal assets to recovery if the LLC doed not fulfill its obligations under the contract. Remember the sellers attorney does not represent you and his or her job is to help the property get sold.

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Answered on 7/13/09, 4:19 pm
Bradley Miller Miller Law LLC

Re: Limited Liability with Guarantee

You are correct in that the personal guarantee would make all who sign it personally liable on the contract. This is frequently done for a new LLC, an LLC with little or some negative credit history, or whenever the other party feels he/she is at risk of not getting paid and wants to be able to go after individuals if the business goes under or doesn't have enough assets to pay.

You need to understand that by you signing the guarantee, even though you have no part in the LLC nor the purchase of the building, the seller can come after you for the ENTIRE amount of the contract if there is a default.

In your case, the seller's attorney is going to be doing what is best for his/her client - the seller. And that is to make as many people potentially liable as possible. This is why it is always a good idea to get an attorney yourself whenever signing contracts, and especially so when the other side has their own attorney.

Your concern with the guarantee not specifying the small sum is probably a valid one. You should definitely bring it up with an attorney when you discuss your concerns with what the seller's attorney has presented you.

If you have any questions or would like to discuss the situation in more detail feel free to contact me.

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Answered on 7/14/09, 9:16 am


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