General legal issues

Personal and limited liability

Personal and limited liability

The trustees of charities and directors of non-profit organisations will generally wish to avoid personal liability for things that they do while they work for their organisation

  • Organisations that are not “incorporated” i.e. are not treated by the law as if they were an individual person.  They include trusts, unincorporated associations and partnerships.
  • Organisations with legal personality include corporations with limited liability such as companies limited by shares, companies limed by guarantee, Community Benefit Societies and statutory and chartered corporations.  Those who participate in such organisations will not generally be liable for the debts of the organisation.
  • Corporations without limited liability include trustees incorporated under Charities Acts, unlimited companies and possibly some chartered companies.  Individuals involved in the control and management of such organisations may become personally liable for contractual debts of the organisation.
  • Individuals who would otherwise have no personal liability because they are officers or members of, or work for corporate organisations with limited liability may become personally liable if they sign personal guarantees and warranties regarding particular liabilities of the organisation, for example under leases or mortgages.  In most cases, this will be inappropriate because those individuals will be volunteers or will otherwise have no direct personal gain from the transaction under which the liability arises.
  • Individuals of corporations with limited liability may become inadvertently liable by omitting details of corporate status from documents so that the other party might reasonably think that they were dealing with individuals whether in their own capacity, or under a partnership or trust.  Therefore,  it is important that full details of an organisation are included in all documents that are intended to create legal relations.
  • Charity trustees have various legal duties in that capacity and may be liable for any loss to the charity caused by any breach of those duties. In particular sections 117 to 129 of the Charities Act 2011 impose statutory duties on the charity trustees, with respect to the disposal of property
    Individual criminal liability may arise because of breaches of certain statutes relating to corporate procedures, but more importantly may arise for those involved in health and safety organisations..
  • There may be various levels of personal liability  for directors of corporate organisations and those who act as such even if not formally appointed for breach of duties under the Insolvency Act.