What is a 'Combined Guarantee'

A Combined Guarantee is a contracted agreement between a credit card company and an account with multiple cardholders which assigns liability for any and all debts accrued on the account to more than one party.

BREAKING DOWN 'Combined Guarantee'

Combined guarantees are often implemented on business credit card accounts, as these types of accounts frequently have multiple cardholders. In many cases, a credit card company issuing multiple cards to an organization under a combined guarantee will require each cardholder to complete a card application and run a credit check on each applicant.

Typically, and especially when a business is a sole proprietorship, a credit card company will assign liability for incurred debts to a sole signatory, even when multiple cards are issued on the same account. Some businesses. however, find it advantageous to name multiple signatories on credit accounts, distributing liability and accountability across stakeholders via a combined guarantee.

When approved, the credit card company will usually assign joint and several liability to all account signatories, which effectively holds each signatory responsible for each transaction on the account.

Joint and several liability conjoins two principles of liability. Joint liability effectively makes all parties equally liable for an obligation up to the full amount of that obligation. A married couple, for instance, may be considered jointly liable for a debt, and if one partner in the marriage dies, the living partner remains fully liable for the debt. Several liability provides that a partner in a debt agreement is liable for their share of that debt. Joint and several liability makes all parties to the obligation responsible for the full amount of the aggregated debt.

Risk Control and Combined Guarantees

While the credit card contracts ultimately govern the type of liability in a business account, it is usually up to the business owners, especially those who are liable for the credit debt, to assess risk and implement internal controls to protect their liability and the financial security of the company.

In recent years, credit card companies have begun to offer increasingly more effective controls on accounts with multiple cardholders, including user-defined spending restrictions and web-based tools for account managers to control card usage, including shutting down cards on a temporary or permanent basis.

Under a limited liability policy, which is a more common and recommended arrangement for business cardholders, a company is usually less exposed to liability for expenses that fall outside of the accepted business expense policy.

A company operating under a combined guarantee, on the other hand, exposes all signatories to equal liability for all accrued expenses. If, for instance, an account signatory leaves the company or is terminated, responsibility for deactivating that person’s card remains with the company and debts accrued on that card remain the responsibility of the combined signatories.

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