Your Business Credit

Q&A: Ex-partner was authorized user; is he liable for card debt?


Your ex-business partner could be equally liable for the company’s credit card debt even if he was just an authorized user on the card. Here’s how to find out.

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Dear Your Business Credit,

I have a business that is an LLC, but when I originally purchased the business, it was a corporation. I was issued a credit card account while it was still a corporation and my partner was an authorized user on the card. We have had the account for over 15 years, and suddenly our partnership has gone south.

One credit card is in my name, and the other card is in my partner’s name with a different credit card number. My ex-partner informed me that since he is just an authorized user, he is not liable for the debt and wants no part of it.

I am aware that being just an authorized used relinquishes him from liability for the debt, but because he is a partner (and the card is in the business name as well as our individual names), isn’t he still liable?

We have been filing as a partnership as of the second year of being in business, and when the cards were initially issued, the company had a corporation number, and it was never changed over to the partnership number.

I do know that when a bank issues a credit card to a corporation, they try to have the owner take personal responsibility for the debt, and that pretty much pierces the curtain of the corporation.

I know this is getting a little confusing, but to sum it up, isn’t my partner equally as liable for the debt even though he is just an authorized user?

The clincher of this whole scenario is this: He has taken the majority of business accounts with him, and has opened up another checking account. Any feedback would be appreciated. – Larry

Dear Larry,

I realize you took out this credit card 15 years ago, so you may not have a copy of the credit card agreement you signed originally, but I would try hunting for it or requesting that the card issuer send you a copy.

I’d double-check that your partner is actually an authorized user and not a joint account holder, a topic I discussed in an earlier column, “Authorized user not responsible for deceased company president’s debt.” If he is a joint account holder, he would have some liability for the debts.

If you alone signed for the card, I’d check the agreement to see if you have sole liability for the debt or if you share it with the company, which is called joint and several liability.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Possible scenarios

Hopefully, the debt hasn’t gotten to the point that you can’t keep up with the payments, but if you don’t have the money to pay the credit card bills, and the card issuer goes after you, technically it could go after the business entity, too, if there is joint and several liability.

I am not sure whether you formally dissolved the partnership, but if you did not, and there are still any assets you own together in the limited liability corporation, your ex-partner might indirectly be forced to pay for his portion of the debts.

I would also suggest looking back at the operating agreement you set up when you formed the LLC. The agreement may have addressed how the business’s debts would be handled in the event the partnership comes to an end and give you legal recourse to go after your partner for the debts.

If you did not have a partnership agreement, the situation will be more complicated, and you will have to research any default agreements in your state. In either case, if the debts are substantial, I would advise you to speak with a business attorney familiar with the laws of your state to learn what your options are.

Ex-partner’s use of card as authorized user

I would also ask the attorney to advise you on what to do about the credit card on which your partner is an authorized user. There is some risk he could use the card in his new business, regardless of which business entity’s name appears on the card. (For information on how to remove someone as an authorized user, see “How to remove someone as an authorized user.”)

However, before you remove your ex-partner as an authorized user on the card, ask the attorney about any possible legal implications that an attempt to sever financial ties in this way might have if you later want to make a case that your partner is still part of the business and owes part of the debts.

Partnership disputes are difficult, and I’m sorry you have to deal with this one. Good luck in bringing this situation to a speedy resolution.

See related: Who is responsible for business card debt?, Business partner’s personal debts on card may be grounds for suit

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