Is a company director liable for company debts?


Good evening all! I am thinking about setting up a private limited company. I would be its sole director, to start with at least. What worries me is liability. As sole director, am I responsible for company debts? Or will I be afforded some protection? Thanks



Company directors are not usually responsible for company debts unless they are also shareholders or have guaranteed money to the company. However, if a company becomes insolvent (bankrupt) and the director has been shown to have acted inappropriately, he or she may have to pay the company money.

Such Inappropriate actions include:

  • Paying dividends to shareholders when the company is insolvent
  • Breaching the terms of a personal guarantee
  • Selling company assets at undervalue or disposing of them at no value
  • Misfeasance - spending company funds on non-business activities
  • Raising company finance using fraudulent methods

If a director is also a shareholder, he or she will be liable for company debts up to the nominal value of their shares. The nominal value of a share is normally £1, so shareholders are required to pay the company £1 (or whatever nominal value the share has been prescribed) for every share they own. This is the limit of their liability, so their own personal finances and assets are protected beyond this sum.

2 years ago

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