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Are Directors Liable for the Debts of the Business?

There are three answers here to the question… Are Directors liable for the debts of the business:

  1. Limited companies have directors and they are not normally liable for the company debts unless they have specifically guaranteed them for example a bank may have asked for a personal guarantee.
  2. Partnerships have partners. If the partnership was registered as an LLP then the partners are not liable.
  3. If it is just a normal partnership (so not an LLP) ten the partners are liable for al business debts.

Limited Companies

The word ‘limited’ in limited company describes the fact that company liabilities are restricted to the company itself and not the owners or directors personally. So, if the limited company fails and goes into liquidation like it or not the directors can just walk away. There are some exceptions and these include when the directors have guaranteed debts or are taken to court for wrongful or fraudulent trading.

Partnerships

If the partnership is just a normal (non-Limited Liability Partnership) then if the business fails, the creditors can also claim against the partners personal assets.

The alternative is an LLP. This creates a partnership but is like a limited company – the liabilities are limited to a claim on the partnership assets only.

An LLP has to be registered Companies House os it is easy to check by going to https://beta.companieshouse.gov.uk/

The advantage to an LLP is the limited liability but the disadvantage is you have to file accounts at Companies House. The tax rates are the same on an LLP compared to a partnership.

 

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