Liability and risks associated with shareholder suretyships

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Shareholder suretyships can make it easier for companies to take out loans. Because of the risks involved, it is advisable to consult a lawyer who practices banking law before providing a suretyship.

When it comes to corporations, the shareholders generally bear no personal liability. This can change, however, if the company requires funds and the bank makes providing a loan conditional on additional collateral. A lawyer specializing in banking law can explore all available options. Fortunately, banking law is one of commercial law firm MTR Legal Rechtsanwälte’s areas of expertise.

One means of financially securing a loan in Germany is through a so-called “Gesellschafterbürgschaft” (shareholder suretyship), which essentially entails a shareholder assuming responsibility for the company’s principal debt that it owes to the bank. Given the considerable personal risk involved, it is a good idea to reach out to an experienced banking lawyer.

The surety’s liability is strictly accessory, which is to say that it is always dependent on the value of the principal debt. If, for instance, the loan is repaid, then the suretyship also ceases to exist. Moreover, the suretyship only apples to the principal debt. Subsequent agreements between the company as the principal debtor and the bank do not affect the suretyship. If the circumstances give rise to legal disputes, it is best to turn to an expert in banking law for advice.

The declaration of suretyship ought to establish the specific liabilities which the surety will be assuming responsibility for. The issue of whether the suretyship should only apply to specific individual claims or to all of the company’s liabilities vis-à-vis the bank can be addressed by an attorney who specializes in banking law.

The risks that the shareholder takes on by acting as a surety become particularly apparent in the event that the company goes bankrupt, as their claims are subordinated. This means that the claims of the other creditors are satisfied first, with the surety only being given a chance if there is still something left over. A banking lawyer can advise the surety on how to minimize this risk.

Additionally, a declaration of suretyship may be null and void if it is found to be contra bonos mores, e.g., if there is a real possibility that the surety will not be able to meet their financial obligations, or if an emotional attachment or connection is being exploited.

MTR Legal Rechtsanwälte advises on all aspect of banking law, including suretyships.

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