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Limited Liability Meaning

Limited Liability Meaning and the distinct disconnection between individuals and companies.

What is Limited Liability

A limited (LTD) company means shareholders may only be liable for limited company liabilities up to the value of their shares held.

Therefore, the directors remain protected from personal liability for their company debts. This also applies if the company is threatened through legal action while directors remain not liable.

It is worth noting that the same applies to members of a Limited Liability Partnership (LLP).

For an individual to benefit from limited liability, a business needs to have been incorporated as:

  1. Limited company (LTD);
  2. public limited company (PLC); or
  3. limited liability partnership (LLP).

In the UK.

Upon incorporation, the business attains a separate legal entity. Therefore, every asset and debt contained within the entity remain separate from the owners. However, should the entity be found insolvent or have legal action directed against it, owners remain liable for debts only to the value of their shares. And no more.

Limited Liability Company Debt Obligations?

Despite the protection of limited liability, company debts can still be worrying and worrying for the directors. Not only is their livelihood at risk, but they also have to be aware of their changing obligations.

Once cash-flow is compromised, a business can decline quickly. Directors then have to carefully monitor their financial position. If the business becomes insolvent (you can check using this free insolvency test), they must prioritise the creditors’ interests. Failure to do so could lead to personal liability for a proportion of the company’s debts further down the line.

Company debts can include unpaid supplier invoices, unpaid rent, and even wages owing to employees. However, one of the most worrying debts of limited liability companies is those owing to HMRC. VAT, PAYE and corporation tax debts are common for company directors. HMRC has its own powers to pursue arrears aggressively, which can make this situation incredibly stressful.

Obtaining help and support to deal with limited liability company debts, and specifically tax debt, is essential. Being proactive about controlling cash-flow and putting a firm plan in place is an important first step, as is identifying areas of the business where the money is being wasted.

Company debt experts can help struggling directors explore debt refinancing and consolidation options, which could provide the working capital required to repay creditors and drive the business forward.

Advantages of operating a Limited Liability Company?

No personal liability for your company’s debts:

  • Avoid personal liability for company debts;
  • allows directors to trade without personal asset exposure to any risk;
  • ensuring compliance and not trading while insolvent, directors safe from creditor action for monies owed.


  • Limited companies remain taxed only on trading profit.
  • Directors may pay themselves salaries plus dividends, the impact being to reduce the tax burden.

Succession planning as a Company.

  • A limited liability company is a separate legal entity. So the company continues to exist, surpassing shareholders. That means if directors or members retire or experience ill-health, the company will continue to exist and operate.
  • Provides security for company employees and members of the company.

Team member buy-in

  • The capacity for company employees to receive shares of the company operating a company share scheme.
  • Can enhance team member commitment.

Security of company name

  • When registering a limited liability company, a name is required for the company. The name may actually be valued as an asset of the company.
  • Registering a name at Companies House blocks anyone from using the name.

Limited Liability Company Debt Responsibilities?

Notwithstanding the protection afforded with limited liability. Debts and liabilities of a limited liability entity remain however concerning. Pressures grow as responsibilities increase.

What should be considered the most important aspect of any business. Many factors can easily affect cash flow, some beyond anyone’s control. Limited company directors remain required to control limited company finances. Once a limited company enters Insolvency, directors must prioritize their company creditors’ interests. If they fail to do so, they expose themselves to criticism and potential personal liability.

Receiving guidance with limited liability company debts and tax debt remains a priority for members of an LLP.

How can we help?

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