When it comes to running a business, there are two main ways in which you can choose to trade; one is by operating as a self-employed sole trader; the other option is to incorporate the business as a limited company. While there are pros and cons to each operating structure, one of the main benefits of incorporating as a limited company is being able to enjoy what is known as limited liability.
Limited liability is afforded to all limited companies in the UK, and essentially means that shareholders are only legally responsible for the debts of a company up to the value of their shares, e.g., the amount already invested in the business.
Limited liability acts as layer of protection between the company and the individual directors/shareholders of the business. This can be extremely valuable if the company ever finds itself in financial difficulty or is threatened with the prospect of insolvency.
A limited company is classed as its own legal entity, separate to that of its directors. This means that the finances and assets of the company belongs to the company rather than its directors/shareholders; likewise, the assets and finances of director belong to the director as an individual rather than the company.
It is also the case that the company is responsible for its own affairs and for paying its own debts. If a limited company is unable to meet its liabilities, falls into arrears, or accumulates debt, the responsibility for repaying these will not be passed to its directors.
All limited companies, whether private limited companies (LTDs), public limited companies (PLCs) or limited liability partnerships (LLPs) are given limited liability upon incorporation. From the point of incorporation, shareholders liability is limited to the value of their shares.
However, some limited companies are limited by guarantee, rather than limited by shares. This often applies to not-for-profit organisations such as charities, sports clubs, and community projects. All profits are retained within the company and shares are not issued.
Instead, the company is owed by guarantors rather than shareholders; their liability for company debts is limited by the guarantee amount noted in the company’s Memorandum of Association. This is typically a nominal amount, often just £1.
Regardless of whether a company is limited by shares or limited by guarantee, both models of incorporation provide directors with the protection of limited liability.
While limited liability provides directors of limited companies with a huge amount of protection in the event of the company failing, there are some notable exceptions where directors can be held personally liable for the actions (and debts) of their company should it become insolvent.
If your business is experiencing financial difficulties and you are worried your company could be insolvent, it is vital that you get expert help and advice as a matter of urgency. Even with the protection afforded by limited liability, you still have a responsibility to take matters of company financial distress seriously. Failure to do this could see you being held responsible for the losses incurred.
The expert team at UK Liquidators are perfectly placed to help you understand your current situation and your responsibilities as the director of an insolvent company. They will be able to talk you through your options and explain the various rescue and recovery solutions which may be appropriate. Depending on your company’s financial position and likely future viability, we will also be able to discuss whether liquidation needs to be considered. Call our team today for immediate assistance.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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