The pitch for a business credit card is that it keeps company spending separate from your own. Many owners assume the balance is the company’s problem the same way an LLC’s debts belong to the LLC. The card agreement often says something different, in language most people sign past. At the Law Offices of Maynard F. Newman, P.L.L.C., we help Grand Blanc and mid-Michigan business owners understand what they are actually agreeing to before they sign, because on many small-business cards the person who applied is personally on the hook.
Does an LLC protect me from business credit-card debt?
Not automatically. Michigan law gives real protection: unless otherwise provided by law or in an operating agreement, a member or manager of an LLC “is not liable for the acts, debts, or obligations of the limited liability company” (MCL 450.4501(4)). That shield protects you from liabilities of the company. It does not erase a separate promise that you make in your own name. A business credit card agreement is frequently exactly that kind of separate promise, so the real question is not whether you formed an entity — it is what the card paperwork says.
Why does the application request my Social Security number?
Usually because it wants more than the business’s information. Many small-business card applications ask for your personal Social Security number and personal financial details, not just the company’s EIN, because the issuer is often underwriting the card against your credit. A request for your Social Security number is a reason to examine the agreement closely, but it does not by itself establish personal liability. The controlling language is the provision identifying who promises to pay or guarantees the account.
Where is personal liability disclosed?
The controlling language usually sits in a section of the cardholder agreement titled something like “Legal Responsibility,” “Your Liability,” or “Who Must Pay.” In many small-business agreements, that section says the person who applied agrees to be liable for all charges on the account, individually as well as on behalf of the business. Some agreements name the business as an obligor too; that does not remove you — it adds the company alongside you. This clause, not the marketing name on the card, is what determines whether the debt can reach your personal assets.
What does joint-and-several liability mean?
It means the issuer can look to you, to the business, or to both — its choice. Joint-and-several liability is not a 50/50 split and does not require the issuer to try the business first. Subject to the agreement and applicable defenses, the issuer may pursue either obligor for the unpaid balance, but it cannot obtain a double recovery — it collects the amount owed once, not twice.
The marketing name on the card — “business,” “commercial,” “corporate” — does not tell you who owes the balance. The liability clause in the agreement does, and on many small-business cards that clause names the person who applied.
Does closing or bankrupting the business eliminate my liability?
No. Dissolution begins the winding-up process. It does not erase the company’s debts or any separate personal promise to pay: a dissolved Michigan LLC may still sue and be sued, and a pending action does not abate on dissolution (MCL 450.4805(3)), and in winding up the company’s assets go first to satisfy its liabilities to creditors before any distribution to members (MCL 450.4808). A bankruptcy filed by the business ordinarily does not eliminate the owner’s separate contractual liability. A business entity receives no Chapter 7 discharge (11 U.S.C. § 727(a)(1)), and when a debtor does receive a discharge under another chapter, that discharge generally “does not affect the liability of any other entity” for the same debt (11 U.S.C. § 524(e)).
Do consumer credit-card protections apply?
Only some do. Business-purpose cards are generally exempt from many Truth in Lending Act protections that apply to consumer cards (12 C.F.R. § 1026.3). The federal regulator that fields these questions puts it plainly: “Only in limited situations does the Truth in Lending Act (TILA) (and Regulation Z that implements the TILA) apply to credit cards extended for business” (OCC, HelpWithMyBank.gov). A few rules still reach business cards, including restrictions on issuing unsolicited cards and a conditional $50 limit on a cardholder’s liability for unauthorized use (12 C.F.R. § 1026.12). Where one issuer provides ten or more cards for an organization’s employees, the issuer and organization may agree to different terms governing the organization’s liability for unauthorized use. An employee’s liability remains subject to § 1026.12. Many billing and disclosure protections that come standard on a personal card, however, may not apply to a business account.
Which liability structure does my card use?
It comes down to how the account is structured, not to the word “business” on the card. The distinction below is the one to look for when you read the agreement or ask the issuer.
| Liability structure | Who owes the account balance? | Personal exposure under the card agreement? |
|---|---|---|
| Individual or joint-and-several liability | Individual, business, or both, as stated in the agreement | Yes |
| Sole corporate liability | Business | Generally no, absent a separate guarantee or another legal basis |
American Express, for example, describes its Corporate Program as serving organizations with broader employee-spending activity, while its Business Cards are typically suited to businesses with smaller teams. Product structures vary by issuer. Note that “commercial card” is a broad product label and does not by itself tell you the liability structure.
What should I examine before signing?
A few minutes with the paperwork answers the question that matters. Look for:
- The application — is it asking for your personal Social Security number and personal financial information, and is there a line agreeing you are personally responsible?
- The “Legal Responsibility” / “Your Liability” section — watch for “individually,” “jointly,” “personally,” and “guaranty” or “guarantee.”
- The liability structure — whether the account is individual or joint-and-several liability (you may be exposed) or sole corporate liability (the business is the obligor).
- How the issuer reports the account — reporting practices vary by issuer and product, so confirm the policy for the specific card.
- The size of the line relative to what you could personally cover if the business could not pay it.
For a large line, or if the clause is not clear, it is worth having someone read it with you before you sign. The firm advises Michigan business owners on corporate and business matters, including the agreements a company signs as it grows.
Frequently Asked Questions
Can the account affect my personal credit?
Reporting practices vary by issuer and product, and an issuer may treat delinquent accounts differently from accounts in good standing. Confirm the current policy for the particular card rather than relying on a general rule.
Is an authorized user personally liable?
Not necessarily. The label “authorized user” does not by itself determine liability. Review the main agreement, the additional-card terms, and anything the user signed. A co-applicant, guarantor, or cardholder subject to a combined-liability arrangement may be personally responsible.
Does using an EIN prevent personal liability?
No. An EIN identifies the business for tax purposes; it does not override a personal promise to pay in the cardholder agreement. An account can carry the company’s EIN and still make you individually liable.
Can I remove a personal guarantee later?
Usually not without the issuer’s written agreement. Options may include paying off and closing the account, refinancing the balance through a sole-corporate-liability product, or negotiating a written release. Opening or transferring the balance to another account does not release the existing obligation unless the original issuer agrees or is paid in full. What is realistic depends on the agreement and the circumstances.
Signing for a business card or line of credit?
The Law Offices of Maynard F. Newman, P.L.L.C. helps Michigan business owners read the agreements they are asked to sign — and understand where the company’s liability ends and their own begins — before they commit.
Schedule a ConsultationPlease note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. Credit card agreements and your personal exposure depend on the specific documents and your circumstances. Laws change and every situation is different; you should consult a qualified attorney about your specific circumstances before acting. This content may also be considered attorney advertising.