Liability of Company Directors
Company directors have limited liability. But there are some cases where directors can be personally liable for company debts.
Examples of Director Liability
If a director acts fraudulently, irresponsibly, or for personal benefit, the court may hold them personally liable for losses. Directors may also be liable if they have an open director’s loan account to withdraw money from the company.
Director Liability Situations
Directors can be personally liable if they: personally guarantee debts, act improperly causing losses, or overdraw a director’s loan.
Liability for Specific Payments
Yes, directors can be personally liable for PAYE and National Insurance payments.
Repaying Creditors
If a company is insolvent, directors must repay creditors using company resources. If held liable, directors may have to sell or refinance personal assets to pay company debts. Limited liability separates directors from company debts unless directors personally guarantee debts.
Nonprofit Board Members’ Liability
Nonprofit board members are rarely personally liable for debts due to incorporated status. Directors should understand liability risks and prevent improper actions.
Director Disqualification
Directors can also be disqualified from acting as the director of a limited company for a period of up to 15 years if they are held responsible for company debts.
Forms of Director Liability
Directors can be personally liable if they: act illegally or unethically, agree to liability in an agreement, or cause insolvency through improper actions.
Fraudulent Activity Consequences
If fraudulent activity is proven, directors face conviction, fines, disqualification as a director, or prison.
Common Liability Situations
Common liability situations include personal guarantees, overdrawn director loans, fraud, misconduct, and improper shareholder dividends.
Director’s Responsibility in Debt Management
Debt can quickly become problematic and cause business failure. Limited companies should manage debt properly. Director liability depends on the situation. Get legal advice if concerned about personal liability for company debts.
Director Liability in Insolvency
If a director knew about insolvency and continued trading, they could be personally liable for the company’s debts. The legislation which covers this situation is the 1986 Insolvency Act.
Limited Liability Companies Debt Responsibility
Limited liability companies (LLCs) are legally considered separate from their owners. In terms of debt, company owners are not responsible for paying LLC debts. However, assets contributed by members can be seized to cover company debts.
Limited Liability Partnerships and Shareholders
In limited liability partnerships, partners are protected from personal liability for business debts. In a company limited by shares, shareholder obligation is to pay for the shares they have taken in the company. If the company ceases to exist, liability ends with the company.
Liability Protection for Shareholders
Limited liability protects shareholders against personal liability for corporate debts.
Personal Liability in Partnership
In a partnership, liability is more like a sole proprietor than a corporation, with some exceptions for hybrid versions. In a limited partnership, the general partner is personally liable for partnership debts, while the limited partner is not.