Directors of limited companies in the UK have limited liability, meaning their personal assets are not usually at risk if the company should fall into debt. This is one of the main advantages of forming a limited company as opposed to a sole proprietorship or partnership.
What should you do if you are setting up a business?
When setting up a business, there are two main ways in which you can operate: you can choose to be a sole trader or you can establish a private limited company. Both options have advantages and disadvantages, with the main benefit of operating as a limited company being that the business will be viewed as a separate legal entity. This is advantageous if the company should run into financial trouble at a later date.
What is a liability?
A liability refers to a financial obligation or debt that a person or business owes to another party. Any debts within the company that have been secured with a personal guarantee will have to be repaid by the director if the company becomes insolvent and enters liquidation. For more information about a directors personal guarantee, you can visit Parachute Law or another expert.
According to the UK government website, an information hub was launched this summer to help limited company directors with decision making.
What happens in the case of fraudulent trading?
If a director is found to have engaged in fraudulent trading, intentionally deceiving creditors or other stakeholders, they may be held personally liable for the company’s debts. Seeking advice from accountants, legal professionals or business advisors can help directors to understand their obligations and potential liabilities.
As laws and regulations can change, it is advisable for directors to stay informed about any updates that may affect their liabilities.