A key concept of incorporated companies is that they limit the liability of the shareholders and directors in the sense that they are not liable for any debts. There is one caveat: If a director has given personnel guarantees, these are excluded from liability exemption; otherwise, this would be considered fraudulent trading.

The most common mistake people make is to trade insolvently, whereby they continue running the business when it does not have enough money to meet its creditors (people to whom it owes money).

Note Directors may become liable personally for company debts even if they believe they have acted honestly and in good faith. See Chapter 18 for more information.

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