| Shareholders | liable up to any amount unpaid on their shares |
| Directors | seven statutory duties under the Companies Act 2006 |
| Insolvency | personal liability possible for wrongful and fraudulent trading |
| Disqualification | 2 to 15 years for unfit directors |
| Identity | lend your identity to someone else's company and you are liable |
What limited liability means
A private limited company is limited in the literal sense: shareholders are liable up to the amount still unpaid on their shares. Once your shares are fully paid, you are not liable as a shareholder for the company's debts. Creditors look to the company's assets.
That is why many business owners set up a company in the first place. The comparison with the sole trader, who is liable with everything, is in sole trader or limited company. For directors it is different: they are not liable for the company's debts, but they are for breaches of their own duties.
A director's duties
The Companies Act 2006 sets out a director's general duties in seven rules. The most important at a glance:
| Duty | What it means in practice |
|---|---|
| Act within powers | follow the articles and resolutions; do nothing the company is not allowed to do |
| Promote the success of the company | act in good faith for the benefit of the members as a whole, with employees, customers and consequences in view |
| Reasonable care, skill and diligence | act as a reasonably diligent director with your knowledge and experience would |
| Avoid conflicts of interest | do not use the company's business, information or opportunities for yourself |
| Declare interests | tell the other members if you could profit personally from a company transaction |
Companies Act 2006, ss. 171 to 177; GOV.UK Running a limited company
Duties you cannot hand over
A director must make sure the company keeps its books, prepares and files its accounts, files its tax return and pays corporation tax. You can give the work to an accountant. The responsibility stays with you. Fail in your duties and you risk fines, prosecution and disqualification as a director; the deadlines are in annual accounts and audit.
Distributions have rules too. Dividends may only be paid out of available profits, from the current and earlier years. The decision is taken at a directors' meeting, minuted, even if you are the only director, and each payment gets a dividend voucher. Take out more than you are due as salary or dividend and you have a director's loan with its own record-keeping and tax rules.
When things get tight: liability in insolvency
The most dangerous phase for a director is when the company heads towards insolvency. UK insolvency law has two grounds that can lead to personal liability.
Wrongful trading: if the company goes into insolvent liquidation, the court can, on the liquidator's application, order a director to contribute to the company's assets. The condition is that they knew or should have concluded that there was no reasonable prospect of avoiding insolvency. Only someone who from that moment took every step to minimise the loss to creditors is relieved.
Fraudulent trading: if the business was carried on with intent to defraud creditors, everyone knowingly party to it is liable. That is not limited to directors.
Then there is disqualification. A director whose conduct in an insolvent company shows them unfit is banned by the court for at least 2 and at most 15 years. During that time they may not run a company.
Since November 2025 Companies House has verified the identity of every director. Companies House expressly warns against letting others use your identity to set up or run a company: criminals can take out credit in your name, and you are liable for it. Anyone acting as a front director carries the full risk. More in identity verification at Companies House.
What it means for founders from abroad
A UK director's duties apply wherever the director lives. If you run a limited company from abroad, you are as responsible under UK law as a director in Manchester. Then there is the tax side: if the company is in fact run from home, it may become taxable there. How to avoid that at formation is described under UK company formation.
Our practical advice: settle from the start who has which role, hold board meetings with minutes and have your accountant show you the numbers regularly. That protects you in a crisis more than any insurance.
Frequently asked questions
As a shareholder of a limited company, am I liable with my private assets?
As a shareholder only up to the amount unpaid on your shares. Personal guarantees you give a bank are another matter.
As a director, am I liable for the company's tax debts?
In principle the company owes its taxes. But a director can be liable through breach of duty, for instance in insolvency, and is disqualified for breaches.
Can a foreigner be a director of a limited company?
Yes. Directors need not live in the UK; they must be at least 16 and verify their identity for Companies House.
Sources: legislation.gov.uk: Companies Act 2006, s. 3; legislation.gov.uk: Companies Act 2006, ss. 171 bis 175; legislation.gov.uk: Insolvency Act 1986, s. 214 (wrongful trading); legislation.gov.uk: Insolvency Act 1986, s. 213 (fraudulent trading); legislation.gov.uk: Company Directors Disqualification Act 1986, s. 6; GOV.UK: Running a limited company
