If you run your business as a limited company, it means your business is a separate legal entity from you personally, providing you with “limited liability”.

This protects your personal assets. Your business’s assets and your personal assets are completely separate. So, if your business runs up debts, they belong to the business, not to you. The company can enter contracts, own assets, and be sued in its own name.

Limited liability in the news

This has come into focus recently in the case of Baroness Michelle Mone. Her husband, Doug Barrowman set up PPE Medpro, to supply the NHS with PPE during the Covid crisis. Judge, Mrs Justice Cockerill, ruled in early October that PPE Medpro, supplied defective PPE and ordered the company to repay £122m to the government. But a day before Cockerill delivered her judgment, PPE Medpro Ltd was put into insolvency, and had no assets.

So how far does that “limited liability” stretch?

Rachel Reeves, the Chancellor is adamant about the repayment, stating on October 1^st: “We want our money back. We are getting our money back.” But how likely is that? The business is in insolvency. Barrowman and Mone have personal assets and whilst estimates vary, a figure of (coincidentally) £120m is bandied about.

But does limited really mean limited?

Generally, yes. To get behind the company, to be able to make the business owners pay, the “corporate veil must be pierced”. And this is difficult. It can be achieved if there is evidence of fraud or impropriety, wrongdoing or business misconduct. This is what the government are looking into currently, with the PPE Medpro case.

In addition, directors may need to give a personal guarantee to secure initial funding, which may override the protection that limited liability provides. And if directors invest personally, then the “liability” includes the amount that was invested, that can be clawed back by creditors.

Are there any disadvantages to making your business into a limited one?

Separating your business and personal finances can be advantageous. A poor business decision, purchase or contract may ruin your business, but not necessarily your life. But there are disadvantages to operating as a limited liability company:

• more administrative work, legal and financial
• and therefore higher costs
• public disclosure of financial information
• more complex profit extraction
• potential for “double taxation”.

And another cautionary word on limited liability

There are examples of directors closing businesses with debts, only to go on to establish new businesses. But often those new businesses will struggle. The credit rating of the directors will be affected, and previous suppliers will be loathe to supply again, certainly on the same terms. Limited liability may protect assets, but should the company fail, directors’ reputations and future plans could be negatively affected.

If you need more information on how to set up your business or how it should be structured, please contact Umberto Vietri on 01274 352056 or email umberto.vietri@awbclaw.co.uk.

16 October 2025

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