Liability of Guarantors and Contribution Agreements

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A common misconception of business owners is that their liability under a personal guaranty of a business loan is equal to their respective percentage ownership interests in the business. However, their liability is joint and several. Therefore, business owners need to enter into a contribution agreement with one another to reflect that their personal liability will be eventually equal their percentage ownership interest in the business.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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