Quick answer
Joint and several liability means two or more people share responsibility for a debt both together and individually. The lender can pursue all of them, or any single one of them, for the full amount, not just a fair share. It appears in most Australian business loans with co-borrowers or several guarantors, so a director who signs alongside a partner may end up paying everything if the other can't.
Key points
- Each person signing can be asked to repay 100% of the debt, not their percentage
- The lender chooses who to pursue, usually whoever has assets it can reach
- A guarantor who pays more than their share can seek contribution from the others
- Standard in loans to partnerships, co-borrowers and companies with several director guarantees
Three words in a loan contract can quietly turn a half-share into a whole one. When a debt is owed jointly and severally, every person named on it promises to repay the full balance, and the lender can decide which of them to collect from. Your ownership percentage, or any private deal between you and your co-signers, doesn’t limit what the lender can claim.
Breaking the phrase down
- Joint: the debt is owed by all of you as a group.
- Several: each of you is also separately responsible for it, as if you’d borrowed alone.
Put together, the lender holds a full claim against each person. It cannot collect more than the total owed, but it doesn’t have to spread its recovery evenly either.
Where business owners meet it
Co-borrowers. Two people borrowing together, such as spouses or business partners who aren’t in a company structure, are almost always made jointly and severally liable.
Partnerships. In a general partnership each partner already carries unlimited personal liability for the firm’s debts, and lenders commonly reinforce that with joint and several wording in the loan documents. Our page on business loans for partnerships covers how lenders assess them.
Several director guarantees. When a company borrows, lenders usually want a personal guarantee from each director. Those guarantees are typically given jointly and severally, so each guarantor backs the entire facility.
Tax debts. A separate but related idea applies to the ATO’s director penalty notices. Each director can be personally liable for the same unpaid amounts, and payment by any one reduces the total for all of them.
An example with two directors
Mia and Tom each own half of a Geelong joinery company. The company takes a $400k loan, and both sign personal guarantees on joint and several terms. Mia owns her home with plenty of equity. Tom rents.
Two years later the business fails and the lender is owed $260k. The lender doesn’t ask each of them for $130k. It pursues Mia for the full $260k, because her house gives it something to recover from.
Mia then has a legal right of contribution against Tom for his half, roughly $130k. But if Tom has no assets, that right may be worth very little in practice. On paper the risk was shared; in reality it sat with the person who had something to lose.
If you’re weighing up whether to sign alongside someone, our team can talk through options with fewer guarantors. Start a short enquiry here.
Questions to ask before you sign
- Is my liability capped at a dollar amount, or is it unlimited?
- Does the guarantee cover just this loan, or every present and future debt the company owes the lender?
- What happens to my guarantee if I sell my shares or step down as a director?
- Can the lender release another guarantor without telling me, and does that change my position?
- Does my co-signer actually have assets, or am I the realistic target?
Banks that subscribe to the Banking Code of Practice have specific obligations to prospective guarantors, including giving them information about the loan and allowing time to get independent advice. Non-bank lenders aren’t bound by that code, so read their documents with extra care and consider having a solicitor check them. Our guide to business loans and personal guarantees goes deeper.
Related terms
Director guarantee, contingent liability, security, default and sole trader. For the trade-offs of signing at all, see guarantor vs no guarantor business loans.
Sharing a business, and a loan?
Who signs, and for how much, is something worth getting right before the paperwork arrives. Spend a minute on our enquiry form and tell us how the business is owned and what each person can put forward. Enquiring has no effect on anyone’s credit score, and your details aren’t sent around to a list of lenders. An experienced specialist reads it properly and calls to discuss structures that suit all the owners. Accurate details about every director and partner help us find a workable option at the first attempt.
Frequently asked questions
What's the difference between joint liability and joint and several liability?
With purely joint liability, the debt is owed by the group together. Joint and several liability adds an individual obligation for each person, so the lender can sue any one of them for the whole amount. Business loan documents almost always use the joint and several version.
If my business partner stops paying, am I liable for their half?
If you signed as a joint and several borrower or guarantor, yes. The lender doesn't have to split the debt by ownership share. You may then have a claim against your partner to recover the excess you paid, but that claim is only worth what they can afford.
Can I limit my liability under a guarantee?
Sometimes. Some lenders accept a guarantee capped at a set dollar amount or limited to particular security. It depends on the lender and the deal, so ask before the documents are drawn up rather than at signing.
Does resigning as a director end my guarantee?
Not by itself. A personal guarantee usually continues until the loan is repaid or the lender formally releases you. Ask the lender in writing for a release if you leave the business.
Are directors jointly liable for company tax debts?
Under the director penalty regime, the ATO can pursue each director personally for certain unpaid company amounts, such as PAYG withholding, net GST and super guarantee charge. Each director may be liable for the same amount, and payments by one reduce what the others owe.