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The Primary Account Holder Trap

Many small businesses rely on {company, business, corporate} credit cards as a convenient and integral part of their business.  However, many small business owners, especially those with multiple {partners, owners, shareholders}, are unaware of several issues related to business credit cards when they apply for a credit card.  If you are a small business owner, make sure you are aware of these issues before signing up for that shiny new piece of plastic: 

  1. Company Credit Card Debt is Personal Debt.  You applied for your {company, business} credit card using the {business, company} name and {business, company} employer ID number.  So that means the credit card and all associated debt is the responsibility of the company, right?  Not so fast. Every credit card company requires an individual, and not a business entity, to act as the primary account holder for a credit card account – even a business account.  This means that any and all debt incurred on company credit cards will ultimately be the responsibility of the person who is the primary account holder and may appear on his or her personal credit report. (Note: some banks will issue credit cards with personal primary liability but don’t report it to credit bureaus). If the company’s debts are substantial, this could increase the debt utilization ration and hurt credit scores.  This also means that if the company goes out of business, or doesn’t have the funds to cover charges made on the company card, the primary account holder could end up being personally liable for paying the card company. 
  2. A business with multiple owners should have multiple “primary” account holders.  In situations where there are multiple partners in a {business, company}, but only one of those partners is the primary account holder on the {corporate, company, business} card, the {company, business} may be at risk.  If the sole primary account holder decides to go rogue, it could be next to impossible for the other owners to have him or her removed as the primary, because in the eyes of the credit card company, the rogue agent is the ‘owner’ of that account.  The only viable option in this scenario is to pass a company resolution removing the company’s name and EIN from the account and trying to work with the credit card company to make the change.  This can be a difficult process and one that could be easily solved by making sure that multiple individuals are included as ‘applicants’ and not simply ‘authorized users’ when applying for the card.
  3. A {business, company} can further protect itself by requiring all “primary” card holders to grant a limited power of attorney to the {company, business} or other officer, member, shareholder, owner, etc. with respect to that account.  This provides an easier way for the {company, business} to make changes if the ‘primary’ holder is incapacitated or otherwise refuses to act on the instructions of the {company, business}.

It may seem like a small or trivial matter, but taking the time to consider who will be the ‘primary’ account holder on a small {business’, company’s} credit card can save a lot of headaches and time down the line. 

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