As long as directors & shareholders conduct themselves properly & don’t commit themselves by signing such guarantees they aren’t liable for company debts.
Many small business owners are sole traders or partners. Frequently, they fail to seek professional advice to look at the alternatives. This is perhaps due to the excitement of starting their new venture.
Since April 2011, there has been many articles written by experts, advocating benefits of incorporating small business for tax reasons. However, there are other reasons to incorporate, not least of which is the protection to shareholders of limited liability. In the eyes of the law, a limited company is a separate legal entity to its shareholders. As long as the directors and shareholders conduct themselves properly and do not commit themselves by signing such as guarantees they are not liable for the company’s debts. The creating of the concept of limited liability is an encouragement of investment and entrepreneurial spirit. Without it, it is difficult to imagine how the stock market would exist
Nobody goes into business expecting it to fail. Regrettably, running a business can be a minefield, particularly for inexperienced owners. But in a period when in recent years huge companies such as Woolworths and Lehman Brothers have toppled, no business owners can be complacent.