07: Liability

Unlimited liability

Unlike shareholders, whose liability is limited, a director’s personal liability is potentially unlimited. Liability could arise if directors:

  • Exceed their authority as laid down in the company’s Memorandum and Articles of Association.
  • Act recklessly or fraudulently (which can also lead to criminal prosecution).
Directors may be personally liable for exceeding their authority if they:

  • Sign cheques that do not carry the company’s correct name – even if only one letter is missing.
  • Enter into contracts and sign cheques, letters or other documents without stating that they are acting on the company’s behalf.
Criminal liability

In the most serious cases, directors can face criminal prosecution. Examples include:

  • Allowing the company to breach Health and Safety legislation, the Environmental Protection Act 1990 and other similar legislation.
  • Failure to comply with the Financial Services and Markets Act 2000.
  • Breaches of Companies Act legislation, such as failure to provide annual accounts or annual returns.