If you've ever signed a contract with someone else (a co-founder, business partner, or another company), you may have noticed wording along the lines of being jointly and severally liable somewhere in the fine print.
It can sound like classic legal jargon, but for a small business owner, this wording can have very real consequences. It can affect who pays the bill if something goes wrong, who gets chased for a debt, and how much risk you're taking on when you sign a contract alongside someone else.
In this guide, we'll break down what joint and several liability means in New Zealand, where it shows up, why it matters, and what you can do to protect your business from day one.
What Does "Jointly And Severally Liable" Mean?
In plain English, being jointly and severally liable generally means:
- Two or more parties are responsible for the same obligation (for example, paying a debt, or meeting contractual promises); and
- Each party can potentially be held responsible for the whole amount, not just their "share".
So if you and another party have joint and several liability under a contract, the other contracting party (or creditor) may be able to pursue:
- all parties together (the "joint" part), or
- one party on their own (the "several" part), potentially for the full amount.
The key point that can catch business owners out is that "we'll split it 50/50" may not limit what the other party can claim from you under the contract.
A Quick Example (The Kind That Happens In Real Life)
Imagine you and your business partner sign a supplier agreement for $30,000 worth of stock, and the contract says you are jointly and severally liable.
If the business hits a rough patch and can't pay, the supplier might decide it's simplest to try to recover the full $30,000 from you (for example, because you have assets, or you respond quickly), rather than chasing your partner first.
You may still have rights to seek contribution from your partner, but that can become a separate issue between you and them (and recovery isn't always straightforward in practice).
Why Do Contracts Use Joint And Several Liability?
From the other party's perspective (the supplier, landlord, lender, or customer), joint and several liability is a risk-management tool.
It means they generally don't have to untangle your internal arrangements or disagreements about who should pay what. If there's a breach or a debt, they can often pursue whoever is most likely to pay (depending on the contract terms and the circumstances).
For small businesses, it's common to see joint and several liability because:
- small businesses may not have long trading histories, so the other party wants stronger protection;
- contracts are often signed by multiple people or entities (for example, two directors, or a partnership); and
- it's a straightforward way to avoid "pointing the finger" when something goes wrong.
That doesn't mean it's always unfair - but it does mean you should treat it as a serious risk allocation clause, not a harmless standard line.
Where You'll Commonly See "Jointly And Severally Liable" In New Zealand Business
If you run a business in NZ, you're most likely to come across "joint and several" wording in situations like these.
1) Partnerships And Co-Ownership Arrangements
If you're operating as a partnership (or you're contracting in a way that effectively behaves like a partnership), joint and several liability risk is a big deal because partners often make commitments together.
That's one reason it's so important to have a properly drafted Partnership Agreement in place. It won't stop a third party from enforcing "joint and several" clauses against you, but it can set clear internal rules about:
- who can commit the partnership to contracts;
- spending limits and approval processes;
- who pays what if a debt arises; and
- what happens if one partner causes loss through negligence or unauthorised decisions.
2) Commercial Leases (And Lease Guarantees)
Commercial leases are one of the most common places we see joint and several liability used in practice.
For example, where multiple tenants sign a lease, or where directors provide personal guarantees, the landlord may try to ensure they can recover rent arrears or damages from any one responsible party.
If you're negotiating premises, it's worth getting a Commercial Lease Review before you sign - especially if the lease includes broad liability provisions, guarantees, or indemnities.
3) Director Guarantees And "All Monies" Clauses
Lenders and suppliers sometimes ask directors (or related entities) to guarantee a company's obligations.
This can blur the line between "the company's liability" and "your liability", which matters because many founders assume a company structure automatically protects them.
It often does - but not if you sign personal guarantees, or if the document makes guarantors jointly and severally liable for the company's debts.
If your business is raising finance, issuing shares, or restructuring ownership, it's smart to keep your governance documents tidy too, including your Company Constitution.
4) Service Agreements And Customer Contracts (Especially B2B)
If you deliver services with another contractor, another business, or a subcontractor, you may end up signing contracts where multiple parties are liable for delivery, quality, timelines, or intellectual property issues.
A well-drafted Service Agreement can clarify roles and responsibilities, but you should still watch for any clause that makes you jointly and severally liable with another party - because it can make you responsible for their mistakes.
5) Joint Ventures And Collaboration Deals
Joint ventures are common in construction, development, events, and large projects where two businesses team up to win work.
Even if you and the other party "split tasks", the customer may want both parties on the hook if the project fails - which often leads to joint and several liability clauses.
This is where it's important to get the structure right: are you signing as two separate suppliers, or as a combined team? Are you giving warranties about each other's work?
What Are The Risks Of Being Jointly And Severally Liable?
Joint and several liability isn't just theoretical. It can become a real problem fast when cashflow is tight, a relationship breaks down, or someone walks away.
Here are the main risks business owners should understand.
You Could End Up Paying More Than Your "Share"
This is the core commercial risk. If your co-obligor can't pay (or disappears, becomes insolvent, or disputes liability), you may still be pursued for the whole amount (depending on the contract and the legal context).
Even if you later have a right to claim contribution from them, that can involve:
- time-consuming negotiations,
- legal costs, and
- the practical problem that they may not have money to repay you anyway.
You Might Wear The Consequences Of Someone Else's Mistakes
Many small businesses collaborate with others: co-founders, subcontractors, co-suppliers, or distribution partners.
If your contract makes you jointly and severally liable for performance, you could be held responsible for:
- late delivery caused by the other party;
- defective goods supplied by the other party;
- misleading statements made by the other party during negotiations; or
- privacy or data issues triggered by the other party's systems.
This is especially important if your business handles customer data. Under the Privacy Act 2020, you generally need to take reasonable steps to protect personal information. If your operations involve collecting customer details, online bookings, mailing lists, or payment information, having a clear Privacy Policy (and aligned internal processes) helps set expectations and reduce compliance risk.
It Can Create Personal Risk (Depending On What You Signed)
Joint and several liability isn't automatically "personal" - it depends on who the parties are and what documents you signed.
For example:
- If two companies sign jointly and severally, each company may be on the hook.
- If two individuals sign jointly and severally, each individual may be on the hook personally.
- If you sign a personal guarantee (even for a company contract), you can be personally liable.
That's why it's crucial to understand who is contracting (you personally, your company, or both) and what the liability clause actually does in context.
How Can You Protect Your Business Before You Sign?
You don't always have the bargaining power to remove joint and several liability from a contract - but you can often manage the risk with the right strategy.
1) Check Who The Contracting Parties Are
Start with the basics (because mistakes here are common):
- Are you signing as an individual, a company, or a partnership?
- Is the other party signing as the correct legal entity?
- Are there multiple parties on your side (co-founders, related entities, trustees)?
If you're building a company with more than one owner, it's also worth putting clear decision-making rules in place early with a Shareholders Agreement, so you're not relying on informal understandings when the stakes rise.
2) Negotiate The Clause (Or Add Guardrails)
Even when joint and several liability stays in, you can sometimes negotiate surrounding terms to reduce your exposure. For example:
- Liability caps (a maximum dollar amount you can be responsible for);
- Clear scope of responsibility (you're only responsible for your workstream, not the other party's deliverables);
- Indemnities that run the other way (if the other party causes the loss, they reimburse you);
- Insurance requirements (so there's a policy to respond if things go wrong);
- Proportionate or allocated liability arrangements where they're appropriate and workable for the deal (noting these depend on the contract terms and, in some cases, the applicable legal rules).
What's "reasonable" depends on your industry, leverage, and the commercial deal - but it's often worth asking the question rather than assuming it's non-negotiable.
3) Put A Written Internal Agreement In Place
If you're jointly and severally liable with another person or business, you should ideally have a separate agreement between you that covers things like:
- who is responsible for payment and when;
- what happens if one party can't pay;
- what happens if the relationship ends mid-contract;
- how disputes are handled; and
- how you approve major spending or binding commitments.
This won't stop the third party enforcing the original contract against you - but it gives you a clearer path to recover money or resolve issues between yourselves.
Many small businesses sign standard terms (supplier T&Cs, marketplace agreements, short quotes) and assume they're low-risk because they look routine.
But joint and several wording is often hidden in:
- guarantee clauses,
- credit application terms,
- lease annexures, or
- "legalese" at the back of a proposal.
Also be careful with side arrangements like "don't worry, I'll cover my half" said over the phone. If the relationship sours, that kind of verbal promise may be hard to prove or enforce - so getting the key points documented is usually the smarter move.
5) Get The Signing Process Right (So You Don't Accidentally Sign Personally)
A surprisingly common issue is someone intending to sign on behalf of a company, but signing in a way that makes them personally responsible.
To reduce this risk:
- ensure the company name and NZBN (if applicable) are correctly listed;
- sign using the correct signature block (for example, "Director");
- avoid signing personal guarantees unless you understand the risk; and
- be wary of "director as indemnifier" clauses buried in annexures.
If you're unsure, it's often cheaper to get advice up front than to deal with a dispute later.
Key Takeaways
- Joint and several liability usually means each responsible party can potentially be pursued for the full debt or obligation, not just their share.
- This wording commonly appears in commercial leases, guarantees, supplier credit terms, and contracts where multiple people or entities sign together.
- The biggest risk is that you may end up paying 100% if the other party can't (or won't) pay - and recovering their share later can be difficult.
- You can often manage the risk by clarifying who the contracting parties are, negotiating guardrails (like liability caps), and putting a strong internal agreement in place.
- Good legal foundations - including the right business structure and properly drafted contracts - help protect you from day one and reduce the chance of expensive disputes.
Disclaimer: This article is general information only and doesn't take into account your circumstances. It isn't legal advice. If you'd like advice on a specific contract or dispute, you should speak to a lawyer.
If you'd like help reviewing or negotiating a contract with joint and several liability (or putting the right agreements in place before you sign), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
