Almost always, when a business seeks money from a lender to finance the enteprise or enters into a commercial lease for space to run the business operations, the individual business owners themselves will be required by the bank or the landlord to execute personal guarantees of the loan or lease as appropriate.  The owners often do so without really understanding not only what ramifications that personal guarantee can have on their own personal non-business related assets (and those consequences are extremely important to consider and truly require a separate article addressing just the issues involved therewith), but also they fail to understand what their rights are with respect to the other guarantors in case the loan or lease is defaulted on by the business entity.  Unfortunately, in today’s current economic climate, this issue is coming up more often that anyone would like.

In Wisconsin, even if both or all of the guarantors did not sign the same guarantee, but signed separate guarantees of the same obligations, in the absence of a separate agreement governing the rights of contribution between co-guarantors, a right to contribution exests for each "co-guarantor" against all other co-guarantors if he or she has paid more than a fair share of the common obligation.

This "right of contribution" means that the co-guarantor that has paid more than his or her fair share of the underlying business obligations has a cause of action in court against the other co-guarantors.  The Wisconsin courts have held that this right is based upon the belief that those who insure or become a surety with another ought to share the results of a default. 

This also means that if more than one person guarantees the debts/obligations of the business their fair share will likely be held to be their proportional amount of such debt, not necessarily their proportional ownership in the underlying entity.  Therefore, if you are a minority shareholder about to personally guarantee a loan or lease of the business, make sure that you limit your exposure under such guaranty and rights of contribution to your ownership percentage in the business, or whatever other percentage you can agree upon with your fellow guarantors, and get it in writing. 

Otherwise, for example, if you are a 30% owner in a business with one other owner who owns the remaining 70%, and you both sign a personal guarantee of a business bank loan, you could be on the hook for 100% of the loan as between you and the bank and then would be limited to seeking only 50% of the loan as between you and your fellow guarantor.  Therefore, "your fair share" could be more than you expected.

Please seek the advice of counsel before entering into personal guarantees of significant obligations.