Liability of Limited Liability Company Partners for Debts
Limited liability companies are among the most common types of companies in Turkey, and their partners are generally not personally liable for the company’s debts. However, the concept of limited liability includes certain nuances that help partners understand both their rights and obligations. In this article, we will address the key points that limited company partners should be aware of regarding liability for company debts.
Structure of a Limited Company and Partners' Liability
A limited liability company is considered a capital company, and its partners are not personally liable for the company’s debts with their personal assets. The partners' liability is limited to the capital they contribute to the company. This means that the company’s financial obligations and debts do not extend to the personal assets of the partners.
For example, if a limited liability company has a total debt of 1 million TL and you own 20% of the company, your risk is limited to the amount of capital you invested. In this case, you could be liable for up to 200,000 TL of the company’s debts. However, your personal assets (house, car, bank accounts, etc.) cannot be used to pay off these debts.
Situations that Can Remove Limited CLiability Company Partners' Personal Liability
Although the liability of limited company partners for debts is generally limited, there are certain situations where partners may be personally liable. These situations may arise from the mixing of the company’s legal entity with personal assets, illegal activities by the company, or if partners personally provide guarantees.
Illegal Activities of the Company
If a company engages in activities that are illegal, partners can be held personally responsible for the company’s debts. For instance, if a company is involved in tax evasion or fraud, its partners may be personally liable for the company’s debts.
Mixing the Company’s Legal Entity with Personal Assets
Even though a limited company has a separate legal entity, it is important to maintain a clear distinction between the company’s and the partners' personal assets. If partners mix the company’s accounts with their personal accounts or personally assume the company’s debts, personal liability can arise. For example, providing a personal guarantee for company debts or attempting to cover the company’s debts with personal assets may result in personal responsibility.
Personal Guarantee
Partners may personally guarantee the company’s debts. This typically occurs in situations such as bank loans or commercial agreements. If a partner personally guarantees the company’s debts, they will be liable with their personal assets if the company fails to repay the debts.
Obligations of Limited Company Partners
Although limited company partners are not personally liable for the company’s financial obligations, they are still responsible for certain legal duties. For example, the company’s tax obligations, social security payments, and other legal responsibilities belong to the company as a legal entity. However, if these obligations are not met, tax authorities and other official institutions can seek responsibility from the company’s partners. Therefore, it is the partners’ duty to ensure the proper management of the company’s financial affairs and make the necessary payments.
Important Considerations for Partners in Limited Liability Companies
While limited company partners are not personally liable for the company’s debts, liability may arise if the company fails to meet its legal obligations or provides false statements. Therefore, it is crucial for partners to closely follow any developments related to the company’s financial operations and seek professional assistance when necessary. Additionally, being cautious about personally providing guarantees can help prevent personal liability.
Conclusion
Limited companies offer partners the benefit of limited liability, but in certain special circumstances, personal liability may still arise. While the responsibility of the partners is generally limited to the capital they contribute to the company, there are many situations where legal responsibility should be carefully considered. In this regard, it is crucial for company partners to seek legal advice, separate their personal accounts from the company’s legal entity, and act in compliance with the law.
If you are a limited company partner and have concerns about your liability, you can obtain support from an experienced law firm to clarify your responsibilities and take the necessary precautions.
Av. İlhan SUBAŞI, LLM
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