Professional Documents
Culture Documents
The directors control the company’s affairs and act as its agent. A company is a legal person;
hence the directors are not personally liable for acting on behalf of it. They have a fiduciary
relationship with the company and its shareholders. However, if a director acts beyond his
power, he can be held personally liable.
Personal liability:
1. Tax liability
As per the Income Tax Act, if any income tax of any previous year is due whose recovery is
yet not made by the private company; then every director of the company will be liable for
this default jointly and severally.
Criminal Liability
1. Dishonoured Cheques
Signing a dishonoured cheque is illegal. If a director does any such act, he can be held
criminally liable along with the company for this action.
The company’s separate legal identity lifts the burden of personal liability from the directors.
However, the concept of the lifting of the corporate veil adds a different dimension to this.
If a finding is made that the company was carrying the business with an aim to defraud the
creditors; and the directors were involved in this action the veil will be lifted. Proof of any
wrongful conduct with the director’s knowledge is enough to shift the liability.
This is mainly done in public interest so that, the directors don’t misuse the security of
limited liability that the company offers.