Corporations generally exist to insulate business owners from liability. Business, including contracts, conducted in the name of the corporate entity, only, carry no personal liability for the individual. However, most lenders are aware of that and often require a personal guaranty to approve business credit. For example, many vendors have now included such a guaranty as part of their application for credit. Accordingly, upon acceptance of the application, personal liability attaches to the debt.

Additionally, most corporate credit cards are based upon agreements which provide that the borrower is both the corporate entity and the individual applying for credit on behalf of the company. Therefore, such debts involve joint liability, as opposed to primary liability and a guaranty.

Finally, certain debts statutorily create personal liability. The most common example is a trust fund tax. Trust fund taxes are those for which a responsible person of the corporate entity acts as a fiduciary for the state or federal government in collecting what is due. State sales tax and employer withholding tax are the vast majority of such taxes. The individual responsible person will be charged with the amount he or she failed to remit to the government entity.

When a business is having difficulty paying its debts, it is highly recommended that the owners speak to experienced debtor counsel to determine the extent of personal liability, if any, and how personal assets may be at risk. There may not be an option to change existing assets, but understanding the level of personal exposure is key to determining the best response, negotiation, debt defense, or bankruptcy.