A corporation is an artificial person that is created by governmental action. The corporation exists in the eyes of the law as a person, separate and distinct from the persons who own the corporation (i.e., the stockholders). This means that the property of the corporation is not owned by the stockholders, but by the corporation. Debts of the corporation are debts of this artificial person, and not of the persons running the corporation or owning shares of stock in it. The shareholders cannot normally be sued as to corporate liabilities. However, in this guaranty, the stockholders of a corporation are personally guaranteeing the debt of the corporation in which they own shares.
Continuing Guaranty of Business Indebtedness By Corporate Stockholders
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US-01108BG
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FAQ
A corporate guarantee is an official letter where a guarantor. They are usually a form of insurance for the lender. becomes responsible for handling debt payments or takes overall responsibility for debt repayment in case the debtor defaults on the loan.
A guarantee is a put option on the assets of the firm with an exercise price equal to the face value of the debt. Consider the following: Let 'V' be the value of a firm and 'F' be the face value of its debt. For simplicity, assume there are no coupon payments and all the debt mature on a specified date.
Generally, shareholders are not personally liable for the debts of the corporation. Creditors can only collect on their debts by going after the assets of the corporation.This is called piercing the corporate veil.
A continuing guaranty is an agreement by the guarantor to be liable for the obligations of someone else to the lender, even if there are several different obligations that are made, renewed or repaid over time. In contrast, a specific guaranty is limited only to one individual transaction.
A guaranty of the payment of an obligation, without words of limitation or condition, is construed as an absolute or unconditional guaranty.
Specific Guarantee: A specific guarantee is for a single debt or any specified transaction. It comes to an end when such debt has been paid.A continuing guarantee applies to all the transactions entered into by the principal debtor until it is revoked by the surety.
As per Section 186 a company cannot give any loan or guarantee or provide security in connection with a loan to any other body corporate or person: exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent.
A continuing guarantee is said to be revoked as regards to the future transactions to be entered between the debtor and the creditor, in the following ways: By notice of revocation by the surety (Section 130) By death of the surety (Section 131)
Continuing Guarantee: It is a guarantee for a series of transactions. According to Section 129, continuing guarantee extends to a series of transactions. The liability of surety in this case extends to a number of transactions and he becomes liable for the unpaid balance at the end of the. guarantee.
