Starting a Business
13. Shareholder Liability
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 07 Jul 2015
- One of the main attractions of running a business through a company structure is the limited liability that can be provided to the shareholders (the company owners). It also makes a company structure more suitable for higher risk business ventures.
- The way this works in a legal sense is that the company's assets belong to the company and the company itself is liable for any debts incurred.
- The company operates as a separate legal entity in its own right. If the company is sued the plaintiffs are suing the company not its owners or investors.
- Shareholders are usually limited in liability to the value of their un-paid shares. This means that when something goes wrong for example if the company goes into liquidation or litigation is brought against it the shareholders may lose the value of their shares but their personal assets are safe.
- The company's assets are its own. They do not belong to the shareholders or owners of the company. Any claims by creditors will be paid from this pool of assets.
- However there are some exemptions to this rule particularly in the context of a small proprietary company with only one shareholder who may also be the company's only employee and director.
- The company structure is not a fail-safe against personal liability. In some situations a personal liability can arise where debts are caused recklessly, negligently or fraudulently. The limited liability discussed here is also different to the liability associated with being a director of a company.
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