A guarantee is an undertaking by one person (the guarantor) to perform an obligation of another person (a borrower or other debtor), given in favour of the person to whom that obligation is owed (the beneficiary). A guarantee is what is known as a “secondary” obligation – this means that the guarantor is only liable if the borrower or debtor has failed to perform the “primary” obligation, which is the obligation of the borrower or debtor which has been guaranteed. In the context of a loan agreement, a guarantee is an undertaking from the guarantor to the lender that the borrower will perform the borrower’s obligations under the loan agreement, the most relevant obligation being to repay the loan and interest. If the borrower does not pay, the guarantor will perform the obligation itself and make the payment instead of the borrower.

Why are guarantees also given as indemnities?

Guarantees are almost always drafted both as a guarantee and as an indemnity. Unlike a guarantee, an indemnity is a “primary” obligation – it is an undertaking from one person (the guarantor) to pay the beneficiary if the beneficiary suffers loss as a consequence of a specified event. In the case of an indemnity which is part of a guarantee for a loan, the specified event is the non-payment of the loan or other breach of the loan agreement. As a primary obligation of the guarantor, the indemnity is independent of the obligations of the debtor or borrower. An indemnity should, unlike a guarantee, remain in effect should the underlying loan agreement or equivalent transaction be set aside or if the borrower is somehow discharged from its obligations under the loan agreement.

What are the formalities of a guarantee?

A guarantee must be in writing and signed by the guarantor (or the guarantor’s agent). It is usual also for a guarantee to be executed as a deed, to avoid an argument that it lacks contractual consideration.

Does an individual require independent legal advice before giving a personal guarantee?

To avoid the possibility of a guarantee given by an individual being potentially set aside by reason of the guarantee having been given under duress or having been procured by undue influence, a lender may require the individual guarantor to seek independent legal advice before entering into the guarantee. This is particularly the case if the individual guarantor is the husband or wife of a shareholder of the corporate borrower.

Guarantee: individual guarantor

Name: Guarantee: individual guarantor - PaperRock Documents
SKU: FIN008.001
Price: 35.00 GBP
Availability: InStock

This Guarantee is for an individual to guarantee the obligations under a loan agreement of another company. It is suitable where the borrower is a company incorporated in England and Wales.

When do I use this document?

Guarantee from an individual (as opposed to a company) for a corporate borrower’s obligations under a loan agreement. The guarantee is in the form of a standalone Deed of Guarantee between the guarantor and the lender

Use this document:

for a guarantee to be given by an individual for a company’s obligations under a loan agreement
for a guarantee in the form of a standalone Deed of Guarantee
where the borrower is a company incorporated in England and Wales

What key features are included?

13 clauses over 6 pages
standalone deed of guarantee
guarantee undertakings given by way of both guarantee and indemnity
standard creditor protections for the continuing effect of the guarantee
limit of liability of guarantor for up to a specified amount
warning notice to guarantor to take independent legal advice

What else do I need to know?

A lender will typically require that an individual guarantor takes independent legal advice before entering into the guarantee. This is done to avoid the possibility of a guarantee being potentially set aside by reason of the guarantee having been given under duress or having been procured by undue influence. This is particularly the case if the individual guarantor is the husband or wife of a shareholder or director of the corporate borrower.

The lender will also require that the independent legal advisor confirms in writing to the lender that the guarantor has received independent legal advice on the guarantee, that the guarantor understood that advice and is willing to enter into the guarantee. For a form of independent legal advice letter, see

Individual guarantor: independent legal advice letter.

What other documents are available?

For a form of guarantee to be given by a company (as opposed to an individual), see

Guarantee: corporate guarantor

For a guarantee clause to be included in a loan or other agreement, see

Guarantee: contract clause

Description

When do I use this document?

if a shareholder has lost its original share certificate or it has been destroyed
if applicable, alongside a transfer of the shares covered by the lost or destroyed original certificate

What are the key features?

different forms of indemnity, depending on whether the shareholder is also transferring shares
alternative forms of indemnity, depending on whether the shareholder is an individual or a company

What else do I need to know?

What is a share certificate?

A share certificate is a document evidencing ownership of shares in a company. By law, shareholders are entitled to receive this certificate when they acquire shares, either through allotment or transfer.

What happens if a share certificate is lost or destroyed?

If a shareholder loses or destroys their certificate, they can ask the company for a replacement. To safeguard itself, the company will usually require a lost share certificate indemnity. This is a legal undertaking under which the shareholder agrees to cover any losses the company might face by issuing the replacement.

What risks does the indemnity protect against?

The indemnity protects the company from risks such as:

Duplicate Claims: If the original certificate reappears, someone else might claim ownership, causing disputes or financial loss.
Fraudulent Claims: A person could falsely claim to have lost the certificate and misuse the replacement, for example, by attempting to sell the shares unlawfully.
Administrative Errors: Mistakes in issuing a replacement or registering a transfer without the original certificate could lead to legal administrative errors.
Legal Liability: If a replacement certificate or transfer is improperly handled, the company might be held responsible for resulting losses.

Explanatory Guides

As with all of our document templates, your purchase will include access to clear explanatory guidance on the document and its use.

£35.00 exc VAT

Updated by a lawyer on 04/09/2024

Updated By a lawyer on 01/05/2023

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