Jeremy Tauri: Companies still have risk of exposure

Companies are a popular trading entity

Many people who go into business decide to do so with a company.

Companies are a popular trading entity - ahead of other options such as partnerships or trading in your own name. What can make them appealing is the fact they're a separate entity to the shareholders and directors of the business.

This can be useful should things go wrong. Generally the limited liability of a company means the risk or exposure is contained to the company entity.

There are some exceptions and if you are thinking your limited liability company means you're off the hook for anything negative that happens to your business, think again.

You have personally guaranteed debt. Signing an agreement for credit to trade are common these days and often include a guarantee that says if your company can't pay the debt then you will take care of it personally.

You have given assets as security over debt. An example of this is letting the bank have your house as security over a loan or overdraft. There may be better ways to structure borrowings, especially if your assets are in a trust.

You have been trading while insolvent. If your company gets into real trouble and the liquidators can show that you were engaged in reckless trading, that can be grounds for them to sue you as the directors.

Not keeping good records. If your company is put into liquidation and you have not been keeping proper records, it can mean liability is sheeted home to you.

Taxes. If you've been taking PAYE from payments to your employees, it has to be sent to the IRD. If that hasn't happened, you could be guilty of an offence under the Income Tax Act.

If you're not sure where you might be exposed in your company, get advice.

Jeremy Tauri is an associate at Plus Chartered Accountants