Articles Tagged with business transaction

For many businesses, promissory notes are a significant asset in the company’s financial portfolio. Securing such a promissory note with a personal guarantee can be an guarantee-300x200important step in protecting the company’s financial interests. Unfortunately, many business owners learn the hard way that a simple promissory note template is not always sufficient to enforce the personal guarantee, thus wasting this valuable asset. Learn more about how a Los Angeles business attorney can help you secure all your assets to protect the financial health of your business.

The Benefits of a Personal Guarantee

When a personal guarantee is accompanied with a promissory note, a personal guarantee acts like collateral. The asset (promissory note) is protected by the collateral (the guarantor’s promise to pay, and the ability to sue the guarantor personally for noncompliance with the terms of the promissory note). As with any collateral, a personal guarantee gives the asset more security. Businesses can therefore protect their financial interests by protecting promissory notes with personal guarantees.

When the shareholder of a corporation files bankruptcy, the shareholder’s stock becomes part of the debtor’s bankruptcy estate and will generally be subject to liquidation by the bankruptcy trustee for the benefit of the debtor’s creditors.

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However, when a limited partner in a limited partnership (LP) or a member of a limited liability company (LLC) files bankruptcy, the debtor’s ownership interest may well be treated differently because interests in LPs and LLCs are typically considered and treated as more contractual in nature.

Membership Interests in LLCs