The principles of joint, several, and joint and several liability can significantly impact how you run your business and who is responsible for certain debts. Joint and several liability commonly arise when two or more parties sign a contract, or in the context of forming a partnership. One of the fundamental elements of a partnership business structure is that partners will be deemed joint and severally liable for other partners’ debts incurred under the partnership. This compares to the general limited liability that shareholders enjoy in private companies. This article introduces the concepts of joint, several, and joint and several liability.
What is Joint Liability?
Joint liability means that two or more people together (jointly) promise to do the same thing. Together, the people have responsibility for the full amount of the obligation. In this case, the promise or obligation is the same, so performance by one party would relieve the other parties of the obligation. Until the obligation is discharged by one of the parties, the other party to the contract could sue all of the parties for the full amount of the outstanding obligation.
For example, suppose John and Jane promise to jointly pay Bob $100. This means that John and Jane are together liable for the total debt of $100. If John pays $30, it reduces the total of the remaining debt, which leaves $70 that they still together owe to Bob. If Bob sues for the remainder, John and Jane will be sued together.
What is Several Liability?
Several liability exists where two or more people make separate agreements with another party. In this case, one person’s fulfilment of their obligation does not discharge the other person’s obligation to fulfil their promise.
For example, John and Jane agree to pay Bob $100, but only when John promises to pay Bob $50 and Jane promises to pay Bob $50. This means John is only responsible for his $50 debt to Bob. If John pays his debt, he does not have to worry about whether Jane will uphold her agreement and honour her $50 debt to Bob. In essence, Bob can only sue each party for their portion of their promise.
Continue reading this article below the formWhat is Joint and Several Liability?
Joint and several liability arises when people together and separately promise to do something. This results in one joint obligation and multiple several obligations. Since it is one obligation, performance by one person discharges all the others of their obligations. However, until the obligation is discharged, each individual is liable for the entire obligation until its performance. The other party can sue all the promisors together, or each separately, at their discretion.
For example, suppose John and Jane jointly and severally promise to pay Bob $100. This means that both John and Jane are wholly liable for the full $100 debt to Bob, or Bob could sue just one of them for the whole amount.
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Key Takeaways
The principles of joint, several, and joint and several liability are legal intricacies that may have a big impact on your business. If you structure your business as a partnership or otherwise enter into a contract with these concepts, be aware of how these principles can impact your individual finances and liability.
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Frequently Asked Questions
Joint liability means that two or more people together (jointly) promise to do the same thing. Together, the people have responsibility for the full amount of the obligation.
Several liability exists where two or more people make separate agreements with another party. In this case, one person’s fulfilment of their obligation does not discharge the other person’s obligation to fulfil their promise.
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