Personal liability for the company's debts

The main rule in a limited company is that the members of the board and the shareholders have no personal liability for the company's debts. If suppliers and other creditors do not get paid, they are referred to the assets available in the company. However, there are some exceptions to this main rule.

The parties may agree that the shareholders shall be personally liable for the company's debts if the company is unable to pay. For example, it is not uncommon for banks to require a personal guarantee in order to lend money to companies.

If the rules on the balance sheet are not followed, the board of directors and, in many cases, the owners may become personally liable for the company's debts that arise after the rules have not been followed and remain liable until these debts have been paid. It is therefore not sufficient for the equity to once again exceed the registered share capital for the personal liability for the company's debts to disappear. In order for new liabilities not to be covered by personal liability for payment, it is also necessary to prepare a new balance sheet or annual report showing that the equity exceeds the registered share capital.

It is also important to pay taxes and fees on time, as otherwise the entrepreneur and board members may be held personally liable for payment if the taxes are due. Many companies have been granted deferrals for paying taxes, often since the coronavirus pandemic, and the taxes for which the company has a deferral have not fallen due. To avoid personal liability for payment, measures must be taken before the due date by filing for bankruptcy or implementing a suspension of payments in some other form, such as corporate restructuring.