{"id":174714,"date":"2022-08-18T04:32:32","date_gmt":"2022-08-18T03:32:32","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=174714"},"modified":"2025-07-02T00:40:37","modified_gmt":"2025-07-01T23:40:37","slug":"limits-to-limited-liability","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/limits-to-limited-liability\/","title":{"rendered":"What Are the Limits to Limited Liability in England?"},"content":{"rendered":"

As a shareholder in a company, you may be familiar with the <\/span>principle of limited liability<\/span><\/a>: you are only liable for the value of your share capital in the company. However, this benefit of limited liability is not absolute. There are certain circumstances where the law can find you personally liable (responsible) for your company\u2019s debts. This article will explain the law surrounding limited liability and consider it from a practical perspective.\u00a0<\/span><\/p>\n

The Corporate Veil\u00a0<\/span><\/h2>\n

The corporate veil is an analogy to describe the relationship between a company\u2019s shareholders and the company itself. The general rule is that there is a veil between the company and its shareholders. This veil acts as a barrier between the company and its creditors. If the company cannot meet its debts, in most cases, the law does not permit any of its creditors to \u201cpierce the veil\u201d and pursue the shareholders individually.\u00a0<\/span><\/p>\n

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This principle is at the heart of English company law. The purpose is to encourage entrepreneurship and reasonable risk-taking.\u00a0<\/span><\/p>\n<\/div>\n

However, there are certain exceptions. Where certain circumstances arise, the law disregards the principle of limited liability and allows a company\u2019s creditors to claim against the shareholders personally. The law refers to this exception as \u201cpiercing the corporate veil\u201d.\u00a0<\/span><\/p>\n

Piercing the Corporate Veil\u00a0<\/span><\/h2>\n

Certain circumstances may entitle a creditor to pursue a company\u2019s shareholders for the company\u2019s debt. The thread that ties these circumstances together is where one or more shareholders use the company as a vehicle to engage in improper conduct.\u00a0<\/span><\/p>\n

Three essential elements must be in place for the law to pierce the veil.\u00a0<\/span><\/p>\n

1. Company Must Be in Control of Another Person<\/span><\/h3>\n

The law must identify an individual that exercised some control over the company.\u00a0<\/span><\/p>\n

In practice, this is usually quite clear. The company is typically small and owned by one or more shareholders that also act as directors. In such a capacity, they then exercise their control over the company to undertake improper action.<\/span>
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<\/span>Notably, the law will also identify non-shareholders as having control over the company, such as:<\/span><\/p>\n