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Personal Guarantees
A
primary reason we set up corporations and limited liability
companies is to legally protect our non-business assets from business
creditors. However, for smaller businesses one of the largest
liabilities may be a business tenant's lease obligation. Many
landlords expect a personal guarantee. This is especially true with
newer companies which may have little or no credit history.
What
can you do when the landlord wants a personal guarantee? Think about
the landlord's real concerns and find ways to more precisely address
those concerns by something less than a blanket personal guarantee
for the entire term of the lease. Ideas for discussion with the
landlord include:
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Limit
the guarantee to a maximum dollar amount, such as an amount equal to
an agreed number of months' rent.
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Limit
the guarantee to a maximum period of time if conditions are met. For
example, the guarantee is eliminated or reduced after a specified
number of years of meeting specific credit requerements and no
default or late payment.
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Reduce
the guarantee after the agent's commission and tenant improvements
are paid back to the landlord, or guarantee only the commission and
tenant improvements and possibly some portion of the rent.
-
Exempt
specified assets from the personal guarantee, such as the family
home or another business, etc. Or, the reverse: specify assets or
their replacements which are subject to the personal guarantee, but
not others.
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Exempt
from default or guarantee a loss due to certain tragedies such as
death or disability of the business owner or a major partner.
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If
there are multiple owners, requiring all owners to give a personal
guarantee may be overkill. And, if one of several owners leaves the
company, don't forget to have provisions for removal of the departing
owner's guarantee.
In
conclusion, try to resolve the landlord's concerns by some means
other than a personal guarantee of the entire obligation and/or term.
All of the above techniques have been tried and sometimes with
success. These same principles can be used with any creditor
demanding a personal guarantee (lender, supplier, etc.). Use your
imagination, and use a good agent and legal counsel when appropriate.
Protecting
Your Intellectual Capital
Intellectual
capital becomes increasingly valuable as a company becomes more
successful. Intellectual capital includes such intangibles as
customer information, marketing techniques, production process and
"know-how", vendor agreements and relations, employees in
place, leasehold rights, franchise rights, phone numbers, web sites,
domain names, along with patents, trademarks and copyrights. One
recent study found that the intangible asset value has grown from a
small percentage 30 years ago to 80% of the market capitalization
value of S&P 500 companies in 2005. It is expected that smaller
businesses have had similar experience.
How
do you protect this valuable asset? Here is a list of items for
protection of intellectual property:
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Employee
contracts addressing the confidentiality of the company's trade
secrets and proprietary information especially on employment termination.
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Employee
manual or other written documents detailing the procedures for
maintaining the secrecy of trade secrets and the company's policies
on protection of its confidential information.
-
Computer
information security protected by passwords, backups, offsite
storage, and other methods.
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Procedures
in place to properly mark proprietary information as confidential,
and procedures to properly dispose of confidential information.
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Third
party nondisclosure agreements when dealing with third parties who
may have access to the company's information.
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Patents,
trademarks, copyrights when appropriate.
A
leak or loss of valuable confidential information can be devastating
to a small company. This is an area worth reviewing and shoring up by
the business owner.
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