Business status

Limited companie​s

A limited company is legally separate from its directors and shareholders. In a small limited company, the directors are often the shareholders.

A company must have at least one director and, in some cases, will also have a secretary. It needs to be registered at Companies House and must send audited accounts to Companies House each year.

See our fact sheet:

Limited companies.

By becoming a director, you agree to act in the best interests of the company, its shareholders, its employees and its creditors. This is called a ‘duty of care’ or ‘fiduciary duty’. Usually, if you are a director (or acting as a director), you are not personally liable for paying the company’s debts. This means that if the limited company does not pay its debts and a creditor takes court action, only the company assets are at risk.

However, you can be made personally liable for the following.

Important:

insolvent limited companies

A limited company is ‘insolvent’ if:

  • the company cannot meet its debts as they fall due;
  • the value of its assets is lower than the total debt that it owes; or
  • it cannot meet its debts as they fall due and has assets worth less than the total amount it owes.

If you are not sure whether your company is insolvent, contact us for advice.

  • Your own PAYE and National Insurance payments.
  • Any income tax you have not paid on cash you have taken from the company.
  • Any personal guarantees you have given for the company (usually to banks, finance companies, landlords and major creditors). This is when you sign an agreement to say that if your business cannot pay the money back, you will pay it back yourself.
  • Any liabilities that have come out of your company after it has been investigated in relation to liquidation (a formal option to deal with the company debts and bring it to a close) and found guilty of wrongful trading. This is when you carry on trading when the company was insolvent and there was no reasonable chance of avoiding liquidation.
  • Any liability where you have benefited from a transaction at the expense of your creditors. For example, if you have bought a company asset for less than it was worth, or you have paid your own wages or directors’ loans from the company assets but cannot afford to pay your creditors. This is called ‘misfeasance’.
  • Any liability that comes from committing fraud while you were running the company. For example, fraudulently taking credit in the company name. This is called fraudulent trading.

Warning:

trading when insolvent

If you are not sure whether your company is insolvent, you will need to be very careful when you are trading. Contact us for advice.

Information:

personal guarantees

If you have given a personal guarantee, it means you have guaranteed to pay part, or all, of the debt back yourself, even if the business closes. Contact us for advice.

If you need more advice about your business status, contact us for advice