A limited liability company protects the shareholders' assets, but it does not always protect the board members. We explain when the board is liable with its own assets and how to protect yourself.
A popular belief goes: “in a limited company I only risk my contribution”. For a shareholder, that is true. For a member of the management board — not always. The law provides for situations in which the board is liable for the obligations of a limited liability company (sp. z o.o.) with its private assets.
Debts to business partners (Art. 299 KSH)
If enforcement against the company proves ineffective, the board members are jointly and severally liable for its obligations under Art. 299 of the Commercial Companies Code (KSH). They can release themselves from liability by showing, among other things, that a bankruptcy petition was filed at the right time or that the creditor suffered no loss.
Tax arrears (Art. 116 of the Tax Ordinance)
A similar rule applies to taxes: under Art. 116 of the Tax Ordinance (Ordynacja podatkowa), the board members who held office at the time the payment obligation arose are liable for the company's arrears that cannot be recovered from its assets. This liability also covers unpaid ZUS (Social Insurance Institution) contributions.
How to protect yourself
- Up-to-date knowledge of the finances — monthly statements of results and receivables let you spot a problem before it becomes insolvency.
- Timely financial statements and tax returns — orderly documents are the foundation of your defence.
- Reacting in time — when the company loses liquidity, the decision on restructuring or bankruptcy must be taken within the statutory deadline.
- D&O insurance — a directors' and officers' liability policy, increasingly common in smaller companies too.
Accounting is no substitute for a legal adviser, but when done well it gives the board what it needs most: an up-to-date picture of the company's situation. That is why every company client of ours receives a monthly report on results and liabilities.
