Limited Liability?

[observer]

Own a PLC, ring up debts with all and sundry, then go bust - what happens? Do the creditors get their money back, especially if remaining assets are negligable? Are the Director(s) prevented from owning or controlling a buisiness again?

[LymmParent]

Liability of shareholders in a Limited Company is limited to the assets of the company. Creditors get nowt beyond that. Directors' and shareholders' personal assets are completely separate. Only in case of misconduct or deliberate fraud might creditors be able to recover money via legal action against individuals.

 

Nothing stops a Director from resuming another business. In fact, it is perfectly legal to wind up your company to shed debt that's threatening the business and then reopen with a new name, same clients, same staff.... basically, sink the company to save the business!

[byrdy]

The answer is in the 2 words,"limited liability" Ob's

[observer]

Thanks LP, you've confirmed my suspicions - so we can have butterfly buisinessmen, moving from company to company, leaving a trail debt behind them - so no surprise our economic system is in the s**t then?

[Peter T]

There was a local company that did it last year. It's just a paper exercise.

[Bill]

The word Limited in the name is also another big clue but it?s not all that easy to misuse the system. Just try setting up a limited company and then try ordering stuff on a credit basis. Most suppliers will require cash up front until you have an established trading history or at best they may offer you a very limited credit facility.

 

Bill

[Peter T]

Is that standard Bill, or depends on the product?

[LymmParent]

It's up to the vendor. You can trade with anyone you like on any credit terms you like, but obviously, most vendors prefer to remain solvent themselves, so they check you out.

 

There are serial abusers of the system, but there are limits to what you can get away with doing, the fines are hefty and "dishonest trading" usually results in prosecution. The Inland Revenue and the VATman are pretty thorough in their scrutiny and obviously, although a dodgy Director can continue to trade, there is a record of what's gone on that's permanent.

 

There is a case to be made though for allowing a viable company to shed bad debts without job losses. Sometimes, through no fault of their own, decent people end up in bad places.

[Bill]

I think it?s pretty well standard Peter. Trading as a limited company (as I do) gives notice to anyone doing business with me that should things go pear shaped, there will be a limit to what can be recovered.

 

Fortunately for me, I don?t have to rely too much on credit but there are times when making larger purchases that some companies won?t take the risk and ask for payment in advance. In the recent recession, several supply companies got a bit jittery about exposure and adopted tight limits on supply. We had to tell PC World where to stick their credit limits recently having dealt with them for over ten years and been their largest user in the area.

 

I?ve come across rouges in my time, I even took one on one time after he admitted he was working on a cunning plan to defraud the tax man by changing the company name slightly. I took him to court over it and the judge made him sign an affidavit that I would not be liable for the money again. (He was an ex copper by the way)

 

Companies are a bit like people, in that most are good and honest but there?s always one rotten apple in every barrel.

 

Bill

[LymmParent]

 

I?ve come across rouges in my time,

 

That's another one of those pictures I really don't want in my head....