"Pitfalls to Avoid by a Medical Practice Startup"
Medical Billing Personal Guarantee
Transactions involving huge sums of money can also require business owners to sign a Personal Guarantee specially if your business is in its infancy. Now what is a Personal Guarantee or PG as some prefer to call it? As the name denotes, it is the agreement by the party receiving the goods or service to guarantee payment by agreeing to include his personal assets in covering the costs in case the receiving party is unable to pay the goods and or services within the agreed terms.
In most cases, businesses are protected by the articles of incorporation wherein the corporation is the sole responsible entity to its incurred debts in the course of its operation. The individual members of this corporation are protected in terms of their personal assets and are not in jeopardy of getting sequestered in case of a default in payment by the corporation. However, creditors (i.e. vendors, property managers and the like), have found a way to pierce the corporate veil by requiring the individual members to sign a personal guarantee.
Normally, creditors are limited to piercing the corporate shield only if certain situations are present. Namely, the company is severely undercapitalized, the company and its owners did not maintain their separate identities in the course of running their business also simply referred to as commingling financial affairs, and finally, when the actions of the company were fraudulent or are engaging in illegal activities. But if the corporate members signed a personal guarantee, then the creditors can now go after the individual members’ assets who signed the Personal Guarantee Agreement. What it means is that any personal property that is under your name or co-owned is now fair game to the creditors. These could be your estate, personal bank account, vehicles registered under your name, stocks that you own, revenues from royalties, and practically anything that has monetary value that can be proven to be owned by you.
In similar fashion, business partners felt the need to sign a personal guarantee when they have no choice but to do so. But before signing those dotted lines, remember the consequences and think long and hard before you do. Now how can you avoid these pitfalls? Detailed planning is always key and coupled with minimizing the risks like avoiding long term lease and personal guarantee agreement can help protect you and your partners.
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