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If your business goes bankrupt, your assets are impounded. They will be used to pay off the debts as much as possible. Your business assets will be impounded, and in some cases also your private possessions, for instance your house, furniture or car. Are you personally liable for your company debts? It depends on the legal business structure of your company.
- If your business operates under a business structure that does not constitute a legal entity, like a sole proprietor or a partnership, you as director are personally liable for your company debts. Both your company assets and your private capital will be used for paying off your debts.
- If your company operates under a business structure that does constitute a legal entity, such as a private limited company, you are usually not personally liable for the company debts. The company assets and your private capital are separate.
You are personally liable for paying debtsYou have a business structure without legal personality. When you incur debts or go bankrupt, you are personally liable with your private capital. If you don’t have enough money in your company (company assets) to pay off your debts, you will have to pay the rest of the amount from your personal belongings. This means that you may lose all possessions of any value, such as your car, your savings and your house. The following legal business structures are not legal entities, and usually consist of natural persons:
Your partner may also go bankruptIf you have entered into a marriage or registered partnership with community of goods, your partner will be fully liable for the company debts with their private capital as well as you yourself. You can prevent this from happening. For instance, by signing a pre-nuptial agreement, or by taking out a clause with your registered partnership contract that specifies both the partners’ private capital.
You are not personally liable for paying debtsYour business is a legal entity. Only the company assets will be taken into account for the bankruptcy process. The director is not personally liable with their private capital, and so does not have to pay the company debts with their private possessions. That is, unless they are held accountable, or have signed agreements as a private person. (vertalen privé aansprakelijk?) These business structures are legal entities:
- private limited company (bv)
- public limited company (nv)
- association (vereniging)
- foundation (stichting)
Exceptions: when are you personally liable?You can be held accountable for company debts as a director of a legal entity. If that happens, you will have to pay the company debts from your private capital.
In case of mismanagementA director is personally liable for company debts in case of:
- fraud, such as falsification of documents
- running unnecessarily large financial risks
- taking decisions with far-reaching financial consequences without proper preparation
- failure to pay taxes or social insurance premiums on time, and failure to report your insolvency to the Tax Administration on time