What is Joint and Several Liability?
The Short Answer
Joint and Several Liability explained simply
Joint and several liability is a legal term. It means that if multiple people owe money or have an obligation, each person is fully responsible for the entire amount. They are also responsible as a group. If one person can’t pay, the others must cover their share. The person owed money can go after any one of the debtors for the full amount.
Real-World Example
The Business Loan Example
Imagine two business partners, Alex and Ben, take out a loan for their new venture. The loan agreement includes a joint and several liability clause. If their business struggles and they can’t repay the loan, the bank can pursue either Alex or Ben for the full loan amount. Even if Alex only owns 30% of the business, the bank can still demand he pays 100% of the debt. Alex would then have to try and get Ben to pay his share.
Why this matters
This matters because it affects your personal risk. If you sign an agreement with joint and several liability, you could be on the hook for more than your share. It’s important to understand this before you sign any contracts, especially for business loans or leases.
Always understand the liability clauses in any contract you sign. Joint and several liability can put your personal assets at risk if your partners can’t pay.
Always understand the liability clauses in any contract you sign. Joint and several liability can put your personal assets at risk if your partners can’t pay.
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