Also known as: personally obligate · personally obligates · personally obligating · personal obligation · personal liability · personally liable
Written by attorneys · grounded in primary & secondary sources — see below
A condition in which a person or entity bears direct liability for a debt or obligation of another person or entity.
Preston Pratt purchases shares in a newly formed corporation. The corporation later defaults on a supplier invoice. The supplier cannot reach Preston's personal bank accounts to collect because he never signed any guarantee or engaged in conduct that would attach liability directly to him.
Pamela Phillips forms an LLC to operate a retail store. The LLC contracts for inventory but fails to pay the wholesaler. The wholesaler sues Pamela personally, yet the court dismisses the claim because her status as member alone does not make her personally obligated for the LLC's debt.
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Perry Pratt joins an existing limited partnership as a general partner after the partnership has already borrowed funds from a bank. When the bank later seeks repayment, it cannot collect from Perry's personal assets for the pre-existing loan because he became a partner after the debt was incurred.
Phoebe Park becomes a partner in a general partnership that already owes a vendor for past services. The vendor obtains a judgment against the partnership. Phoebe's personal assets remain unreachable because the obligation arose before she joined.
Parker Phillips owns all shares of an undercapitalized corporation that ignores corporate formalities and uses the entity solely to shield personal assets. A creditor sues and the court disregards the corporate form, holding Parker personally obligated for the corporate debt.
Patricia Patel, as trustee, signs a supply contract on behalf of a trust and discloses her fiduciary role in the document. The supplier later sues Patricia personally after the trust fails to pay. The court dismisses the claim because the disclosure prevents her from becoming personally obligated.
A shareholder is not personally obligated for corporate liabilities solely by owning shares. Liability attaches only if the shareholder signs a personal guarantee, engages in conduct that creates direct responsibility, or the corporate veil is pierced under a two-prong test showing alter ego status and fraud or injustice.
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No. A member or manager is not personally liable for LLC debts solely by reason of being or acting as a member or manager. The debt remains solely that of the company regardless of dissolution.
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A person who becomes a partner or general partner is not personally liable for partnership or limited partnership debts incurred before becoming a partner. This protection applies even in limited liability partnerships or limited liability limited partnerships.
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A trustee is not personally liable on a contract properly entered in a fiduciary capacity if the trustee discloses the fiduciary capacity in the contract. The disclosure prevents direct personal liability from attaching.
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