One of the major differences between operating a business as a sole proprietor and being the director of a limited company is the commercial law relating to liabilities. In particular, a person acting as a sole proprietor is seen legally as the same entity as the business, and as such is liable for any of the debts and liabilities incurred by that business.
Conversely, under commercial law, a company director is regarded as a different legal entity to the business and thus in normal circumstances would not be liable for any of the debts or liabilities the business had. This is one of the often-cited advantages of running a business as a limited company rather than a sole proprietor, however, there is a caveat.
The protection for directors concerning a company’s debts and liabilities is not absolute, and there are actions, behaviours and circumstances that could mean a director does find themselves responsible for the cost of liabilities and obligations which were taken out in the company’s name. There are 5 specific categories of liability that a director might find themselves responsible for and they are: