Hello NewcoPersonal guarantees
Banks, landlords and some suppliers may ask you to personally guarantee the company's debts. If you sign one and the company can't pay, they can come to you. Read every guarantee carefully and take advice before signing.
Your duties as a director
The Companies Act 2006 sets out duties every director owes the company. In short, you must:
- act within the company's constitution and use your powers for their proper purpose
- act in the way most likely to promote the success of the company
- use independent judgment, and reasonable care, skill and diligence
- avoid conflicts of interest and declare any interest in a proposed deal
- not accept benefits from third parties because you're a director
When money's tight
If the company is, or is likely to become, insolvent, you must give proper weight to the interests of its creditors, not just its shareholders.
Wrongful trading: if you carry on trading after you knew, or should have known, that the company couldn't avoid insolvent liquidation or administration, and you didn't take every step to minimise creditors' losses, a court can order you to contribute personally.
If you're worried about solvency, get advice from an accountant or insolvency practitioner early.
Disqualification
Directors whose conduct makes them unfit can be disqualified from running a company for between 2 and 15 years. Acting as a director while disqualified is a criminal offence.
Quick answers
Can a director be personally liable for company debts?
Yes, in some cases. The most common is a personal guarantee to a bank, landlord or supplier. A court can also order a director to contribute personally for wrongful trading.
What is wrongful trading?
Carrying on trading after you knew, or should have known, that the company could not avoid insolvent liquidation or administration, without taking every step to minimise creditors' losses.
What duties do company directors have?
Under the Companies Act 2006, directors must act within the constitution, promote the success of the company, use independent judgment and reasonable care, avoid conflicts of interest and not accept benefits from third parties.
How long can a director be disqualified for?
Between 2 and 15 years. Acting as a director while disqualified is a criminal offence.
Video transcript
Read what's said in the part 6 video
Part six: limited liability protects you. Mostly. Here's where it stops.
One: personal guarantees. Lenders and landlords may ask for one. Sign it, and you can be personally liable if the company can't pay.
Two: your duties. As a director, you must promote the company's success, use reasonable care, skill and diligence, and avoid conflicts of interest.
Three: when money's tight. The closer the company gets to insolvency, the more weight you should give to creditors' interests. Keep trading when you knew, or should have known, that insolvent liquidation couldn't be avoided, and a court can order you to contribute.
Four: get it badly wrong, and you can be disqualified as a director for up to fifteen years.
That's the series. Keep good records, and get proper advice when it matters. This is general information, not advice. Follow Hello Newco.
That's the series
You've covered a director's first year, from set-up to personal risk. Follow Hello Newco for what comes next.