Is it possible to get a business credit card that won’t hold you personally – not just your business – liable for any debts you incur? Unfortunately, it’s nearly impossible to find a business card without a personal guarantee. This means that even if you have a limited liability company (LLC), you might be on the hook for debts incurred on your business card even if you’re protected from other creditors.
How much are you liable for? A business structure breakdown
If your business goes under, you might end up losing your own assets – money, jewelry, fine art, anything that isn’t protected by state exemption laws. Here’s a breakdown of different liability cases:
- Sole proprietorships (DBA’s, or doing business as): In the eyes of the law, you and your business are the same entity, so you are liable for all of your business’ debts.
- Partnerships: Every partner is liable for 100% of the business’ debts. This means that if a creditor goes after you and your partner, and your partner’s assets cover just 25% of the debt, you’re on the hook for the other 75% even though you only own half the company.
- Corporations and LLC’s: If you have an LLC, you and your company are different entities. This means that you aren’t on the hook for any of your business’ debts. However…
You’re almost always liable for credit card debt
No matter what your business structure is, you almost always have to personally guarantee a business credit card. Issuers know that small businesses are risky, and are generally unwilling to lend unless you promise to back up the debts. Therefore, in your credit card agreement, you pretty much always have to guarantee the debt, even if you’re part of an LLC. American Express, Bank of America®, Capital One, Chase, Citi, Discover, U.S. Bank and Wells Fargo all require a personal guarantee.
Am I personally liable if I’m an employee, not an owner?
If you have an employee credit card, you may or may not be liable for the debts on the account. Note that if you are on the hook, you’re responsible for paying all the debts, not just the debt on your own card. Whether or not you’re liable depends on the arrangement of the credit card. Your employer can choose to assume all of the debt, or she can choose to link the card to you personally.
How do I know if I’m liable for my company’s debt?
- These are a few markers that you have guaranteed your employer’s debt:
- You had to provide financial information – a credit history, for example – to get the card
- The card appears on your personal credit report (get your report for free once a year at annualcreditreport.com)
You pay your monthly credit card bill and then get reimbursed
If you feel uncomfortable being held liable for your company’s debt, speak to your employer or HR manager. Offer to simply put your purchases on your personal credit card and expense them if your employer insists that you take a company card. Alternatively, you can tell your employer that you’re happy to use a company credit card, as long as you don’t have to guarantee the debt.
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- Q&A: What’s the Best Credit Card for a New Small Business?