3 ms·

I'm not suggesting that at all. There are many good reasons to incorporate, including the ability to walk away from catastrophic debt. But there are personal co

I'm not suggesting that at all. There are many good reasons to incorporate, including the ability to walk away from catastrophic debt. But there are personal consequences to doing so that the corporation can't do anything about. A real life example: I am involved in the management of a commercial real estate property. We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report. If you're not seriously involved in the entity, then none of this matters, obviously. Side note: it's generally the norm for someone to personally guarantee a merchant account for a new business - I wouldn't call that silly.

jacquesm 16y ago
> We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report. In the case of a sole proprietorship I can see how that link would be made, but otherwise it is highly unlikely that a shareholder/officer would be affected in this way.
- andjones 16y ago
  Any new company must boot-strap their credit (and credibility) in some way. Generally this is done by an officer or owner tying their credit with the company's credit. I own majority in a C-Corp and when applying for a merchant account I was asked to backup the company with my credit and SSN as well as sign for the company with its EIN.
  - jacquesm 16y ago
    Ok, so you voluntarily agreed to do that, and in that case it makes sense. But you were under no obligation to do that, and you being the majority shareholder is also a key element here. The OP is not a majority shareholder, as far as I can see has no obligation to go in to this now and it would be a very bad move indeed to get his name on any paperwork where he privately assumes the debt of the corporation just 'because his name is already on the paperwork'. It would make it easier, not harder to tie this to him in the future.
    - tptacek 16y ago
      I think this "minority/majority shareholder" business is probably a misleading red herring. The point is that the company's creditors agreed to do business with a corporation, which is a separate legal entity from the officers of the corporation. Full stop. If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. But if Rackspace invoices your company, you could own 99.9999% of its shares and most probably not owe a dime. There are situations --- they vary from state to state --- that "pierce the corporate veil". Fraud is one of them, so is negligence, and so (in some crazy states) is payroll. What they tend to have in common is a tort: something an agent of the company explicitly did wrong to cause damages to another party. Signing a contract and not being able to live up to it is almost by definition not the same thing as a tort, which is why law students have separate classes in "torts" and "contract law".
      - jacquesm 16y ago
        True, but if you're a sole proprietor that makes it a lot easier to go after you. A majority (but not sole) shareholder has a less hard time and a minority shareholder has nothing to worry about at all.
        tptacek 16y ago
        The difference between "sole proprietor" and "sole shareholder of a corporation" is large; these are two totally different business structures.
      - lsc 16y ago
        >If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. My experience has been that if you are a small, new corp, nobody will give the corp any credit without a personal co-sign. I don't think it's silly to personally co-sign stuff. I mean, it's not something to be done lightly, sure, but if you need a lease, you need a lease. sometimes you need to take the risk
    - damoncali 16y ago

jacquesm 16y ago

> We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report. In the case of a sole proprietorship I can see how that link would be made, but otherwise it is highly unlikely that a shareholder/officer would be affected in this way.

andjones 16y ago
Any new company must boot-strap their credit (and credibility) in some way. Generally this is done by an officer or owner tying their credit with the company's credit. I own majority in a C-Corp and when applying for a merchant account I was asked to backup the company with my credit and SSN as well as sign for the company with its EIN.
- jacquesm 16y ago
  Ok, so you voluntarily agreed to do that, and in that case it makes sense. But you were under no obligation to do that, and you being the majority shareholder is also a key element here. The OP is not a majority shareholder, as far as I can see has no obligation to go in to this now and it would be a very bad move indeed to get his name on any paperwork where he privately assumes the debt of the corporation just 'because his name is already on the paperwork'. It would make it easier, not harder to tie this to him in the future.
  - tptacek 16y ago
    I think this "minority/majority shareholder" business is probably a misleading red herring. The point is that the company's creditors agreed to do business with a corporation, which is a separate legal entity from the officers of the corporation. Full stop. If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. But if Rackspace invoices your company, you could own 99.9999% of its shares and most probably not owe a dime. There are situations --- they vary from state to state --- that "pierce the corporate veil". Fraud is one of them, so is negligence, and so (in some crazy states) is payroll. What they tend to have in common is a tort: something an agent of the company explicitly did wrong to cause damages to another party. Signing a contract and not being able to live up to it is almost by definition not the same thing as a tort, which is why law students have separate classes in "torts" and "contract law".
    - jacquesm 16y ago
      True, but if you're a sole proprietor that makes it a lot easier to go after you. A majority (but not sole) shareholder has a less hard time and a minority shareholder has nothing to worry about at all.
      - tptacek 16y ago
        The difference between "sole proprietor" and "sole shareholder of a corporation" is large; these are two totally different business structures.
    - lsc 16y ago
      >If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. My experience has been that if you are a small, new corp, nobody will give the corp any credit without a personal co-sign. I don't think it's silly to personally co-sign stuff. I mean, it's not something to be done lightly, sure, but if you need a lease, you need a lease. sometimes you need to take the risk
  - damoncali 16y ago