The tension between business risk and responsibility dates from ancient times.
Plato said –
“Good people do not need laws to tell them to act responsibly
while bad people will find a way around the laws.”

It’s a bit broad brush to categorise as “bad” people who structure their affairs to avoid personal liability however it’s fair to say that the catalyst for the creation of the Company business structure was to shelter individual controllers from personal responsibility when things didn’t go as planned and sometimes even when they went exactly as planned.

The fundamental concept behind structuring a business through a Company is “limited liability”. That means that the controllers of a company will generally not be responsible for the obligations of the Company. This was traditionally justified on the basis of promoting business activity and innovation which was perceived as being for the overall public good.

Societal changes particularly over the last fifty years have seen the potential liabilities of Company directors increase significantly. Consumer/creditor protection has been a factor in this but protection of public revenue streams from various forms of taxation has also been significant.

For quite some time, company directors have had potential liabilities for income tax debts of their Company. Those same obligations however have not existed in relation to GST liabilities and that has resulted in a very significant loss of public revenue from companies controlled by unscrupulous directors. That is about to change.

Legislation just passed gives ASIC increased powers to combat conduct by directors intended to defeat creditors and also allows the Commissioner of Taxation to make Company directors personally liable for their Company’s GST liabilities in a range of circumstances. The latter provisions take affect from 1 April this year.

At Everingham Solomons we have the expertise and experience to help you with these issues because Helping You is Our Business.

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