In most situations, you will not become personally liable for the debts of a limited company (LTD) and this is because a LTD runs in a different way to a sole tradership or a partnership. In a LTD, the company is a separate entity to the directors/shareholders who are associated with it.
As a result, this provides the directors with protection known as limited liability should the company run into financial difficulties. Therefore, in most situations, if you run a LTD and close it due to its financial position, you will not be responsible for the debts of the company.
You will generally only be personally liable for your company’s debts if you signed a personal guarantee to cover a contingent liability, for example:
- The company’s bank borrowing – Banks frequently ask for personal guarantees to cover overdrafts and loans.
- Leased premises – This is more likely to be relevant if your business was new when you signed your lease as the landlord may have asked for a personal guarantee to secure the lease. You should refer to your lease, tenancy agreement or get in contact with the solicitor who dealt with the lease.
- Have contracts with certain suppliers – In some sectors, such as construction, suppliers may have asked you to sign a guarantee when they set up credit terms for your company. It is worth checking all paperwork from your suppliers for this guarantee when you are closing your company.
If you manage a company, knowing that it is insolvent and continue to trade which is to the detriment of creditors, you may be held personally liable for the company’s debts. Similarly, if you allow the company to be involved in any illegal activity you are not protected by limited liability.
To find out more about closing a limited company or if you are not sure about your current situation, get in touch with us on 0800 901 2475. Our friendly, professional advisers will be able to give you the information and support you need to answers your queries and deal with your current situation.