When a merchant is terminated for fraud, breach of contract or excessive chargebacks, they can be placed on the TMF (Terminated Merchant File) and MATCH (Member Alert to High-Risk Merchants) lists which all Visa/MC member banks have access to. The social security numbers of all the principals are added to that list, so that if they apply with a new business somewhere else, the bank knows they've previously been a principal of a business some other bank terminated, and the reason.
I've noticed a disturbing trend in this respect recently, with seemingly everyone from law firms to banks wanting personal guarantees from someone to back up the company. This practice should, IMHO, be prohibited by law, and this should be impossible to override via any contract.
The entire point of a limited company (in UK terms) structure is that you know you are running a legally separate entity, and everyone else knows they are dealing with a legally separate entity. Everyone should judge the risks they are willing to take and offer terms that factor in those risks accordingly. This is done to incentivise people to start new businesses where there may be some degree of risk, without having to risk literally the roof over their heads to do it, and is universally acknowledged to be in the interests of economic development, which is why every major economy in the world has a concept analogous to that limited company.
Checking the credibility of the principals and asking for things like business plans and company financial statements is all perfectly reasonable so that a potential business partner can judge the level of risk. However, allowing piercing agreements is simply a completely one-sided deal: the little guy is now back on the hook for all of the risk, yet still takes the hit on all the bureaucracy associated with running a formal company.
If such agreements were banned, the banks and lawyers and other high-powered services would still have to deal with other businesses or they'd have on customers. They'd just have to be more realistic about what they charged if they wanted to continue working with profitable customers in the long run.
[Edit: Incidentally, piercing agreements do not seem to be completely universal. We've seen some fairly unpleasantly one-sided terms while investigating payment services, frequently including things like requiring direct control of your main bank account so they can grab whatever they feel like whenever they feel like it, but not everyone has asked for personal guarantees (as opposed to a personal credit check) at least at the stage we've got to with them.]
Could elaborate on the other ones?
If you think about this for just a second, you can see that incorporation can't possibly be a "get out of credit checks free" card.
The issue is that fraud prevention--like terrorism prevention--means the side that's doing the groping isn't going to tell you exactly what they're doing and why. This leads to a lot of confusion.
For the first few years I was in business my corporate credit lines were effectively personal credit lines that happened to have my company name on them.
