Everyone understands that a self-employed person is liable with their personal assets for the debts generated by their professional activity, as there is no legal separation between their personal assets and those of the business.
This is why many entrepreneurs believe that, by setting up a limited company, they are automatically protected from the business’s debts. However, if you are a self-employed company director, you should be aware that your personal assets may be at risk if you do not manage your responsibilities as a director properly.
There are several circumstances that can lead to a partner becoming a self-employed company director, one of the most common being when they are a director of the company and own more than 25% of the share capital.
In these cases, even though the company has its own legal personality, the director may be held personally liable if several conditions are met:
– Negligent management: If the director fails to fulfil their legal duties — such as not keeping accounts, not filing taxes or acting to the detriment of the company — they may be sued by creditors.
– Debts to the tax authorities or social security: The tax authorities and the Treasury may refer the debt to the director if they detect repeated non-payment, concealment of assets or lack of cooperation.
– Company in the process of dissolution: If the company enters into dissolution (due to losses, inactivity, etc.) and the administrator does not call a meeting or liquidate the company, they may be liable with their own assets for the debts incurred from that moment onwards.
– Lifting of the corporate veil: In serious cases, the courts may ignore the legal personality of the company if it is proven that it has been used as an instrument to defraud or evade responsibilities.
For this reason, to help you protect your assets, we recommend that you maintain rigorous and documented management, comply with all tax, accounting and commercial obligations, and act with diligence and transparency. If you need help achieving this, do not hesitate to contact MDG Advisors and we will accompany you through the process.
Isabel María Díaz Rubio