What actually is Limited Liability in respect to being Ltd?
Discussion
What actually is Limited Liability in respect to being Ltd?
In business studies back in my school days we were taught that being Ltd meant the directors weren’t liable for business debts if it folded with unpaid suppliers or got sued, where as a sole trader was liable for everything.
On the contrary, my accountant said your just as much on the line as a director or a sole trader and in practice it offers no protection what so ever – if the companies in debt or sued, you’re personally liable for the lot.
What’s the reality on this?
(NB: No intention of having any difficulties or reason to need this info – just asking the question for interest sake.)
In business studies back in my school days we were taught that being Ltd meant the directors weren’t liable for business debts if it folded with unpaid suppliers or got sued, where as a sole trader was liable for everything.
On the contrary, my accountant said your just as much on the line as a director or a sole trader and in practice it offers no protection what so ever – if the companies in debt or sued, you’re personally liable for the lot.
What’s the reality on this?
(NB: No intention of having any difficulties or reason to need this info – just asking the question for interest sake.)
ninja_eli said:
Since this can only be the case where a personal guarantee is given, or if it is proven the director(s) acted fraudulently... maybe your accountant knows more about you then you thought (joke btw!)
Well that was always my interpretation of “Limited Liability” – you’re liable for any separate agreements, such as guaranteeing a loan, but not for the usual business trading risks etc.
I have no intention of getting a loan or anything else like that so its not really an issue…
and if my accountant knows of some wrong doing its news to me! Get a new accountant 
The veil of incorporation is very rarely lifted and in practice limited liability is exactly as you say it is. I think there have been attempts recently to make directors personally liable, but not to any great extent unless they were trading wrongfully or fraudulently.
The veil of incorporation is very rarely lifted and in practice limited liability is exactly as you say it is. I think there have been attempts recently to make directors personally liable, but not to any great extent unless they were trading wrongfully or fraudulently.
Muncher said:
Get a new accountant
The veil of incorporation is very rarely lifted and in practice limited liability is exactly as you say it is. I think there have been attempts recently to make directors personally liable, but not to any great extent unless they were trading wrongfully or fraudulently.
Unless you owe the government money...then you just go to jail. Owe anyone you like cash. But not the taxman.
Since 2004, the tax authorities are no longer ranking creditors. They just have to line up with everyone else. Obviously, they do have rafts of legislation they can throw at you, especially if they suspect that your inability to pay them has been brought about deliberately i.e. through fraud.
hughjayteens said:
Yes basically unless you give a personal guarantee to anyone, the company alone is liable for any debts etc unless you owe the taxman or vatman, in which case they can nail you to the wall and take your house!
If the directors continue to trade when they know/should have known that the company is unable to pay its debts then they become personally liable for any further debts incurred.
If this is what the Accountant meant they are technically quite correct.
That is absolutely true - but the number of successful prosecutions brought against Directors under that "Wrongful Trading" legislation is miniscule. In the 20 years it has been in place, it has proved extremely difficult to prove whether a director or directors traded wrongfully or were just unlucky or unskilled in their economic decision making. It is still not a crime to be a bad or unlucky businessman.
Eric Mc said:
That is absolutely true - but the number of successful prosecutions brought against Directors under that "Wrongful Trading" legislation is miniscule. In the 20 years it has been in place, it has proved extremely difficult to prove whether a director or directors traded wrongfully or were just unlucky or unskilled in their economic decision making. It is still not a crime to be a bad or unlucky businessman.
That is why I said 'technically' correct
Eric Mc said:
It was a pretty ineffective piece of legislation.
A customer of mine a few years ago was a limited company, but the debts of the company reverted to him as he had traded knowlingly whilst insolvant. The official receiver (i think) applied to the high court to have his subsequent business wound up as that was also trading whilst insolvant, and to be liable for those debts as well, although I believe he declared bankrupt fairly quickly afterwards.
Essentially, the guy never paid his bills, and forgot to pay the liquidators.
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