Consequently, if the company goes bankrupt, the private assets of the directors such as family home, family car, savings etc cannot be taken by the creditors. The individual directors do not go bankrupt and they can start up in business immediately afterwards, on their own account, with no liability for the company debts. It should also be noted that only the company is liable for the negligence of company employees. The directors are not liable. However, in practice, the advantages of limited liability are often curtailed.
Companies commonly obtain loans from banks.
It is usual in such cases for the bank to insist upon the personal guarantees of the directors. Consequently, in such cases, the benefit of limited liability is lost so far as the loan is concerned. Directors are also personally liable if they knowingly allow the company to trade when there is no reasonable expectation that it can pay its debts. Directors are also liable for the debts of a company if they fail to inform the person with whom they are trading that he is trading with a company. The directors will be liable for the debt in such a case.