Being the director of a limited company gives you limited liability. This essentially means that you are not responsible for the business’s debts. In the UK, a limited company is a separate legal entity from its owners, and one of the key advantages of forming a limited company is the protection it gives.
Wrongful trading can leave directors liable
Directors can be held liable if they allow a company to continue trading while insolvent and they do not take appropriate steps to minimise the potential loss to creditors. This is known as wrongful trading.
Fraudulent or wrongful conduct can lead to a company falling into debt
If individuals engage in fraudulent or wrongful activities that lead to the company falling into debt, they could be held personally liable for their actions. According to Bytestart, there are certainly advantages to setting up a limited company.
Seek legal advice before signing a personal guarantee
If an individual provides a personal guarantee for the company’s debts, they are putting their own assets at risk. A personal or director guarantee is where a company boss promises to repay any monies if the company falls into debt. Before entering into a personal guarantee, it is advisable for the person to seek legal guidance to fully understand the implications and potential risks involved. For more information or advice, please visit Parachute Law.
Directors should be aware of their responsibilities
It’s important for directors involved in limited companies to be aware of their responsibilities and the potential circumstances under which they could be held liable. Before embarking on a directorship, it can be beneficial to be fully schooled in all aspects of business. Seeking legal guidance is advisable to understand the implications surrounding any potential personal liability.