March 28, 2025
Limitless Team
The figure of the director of a public limited company is key to the operation and success of the company. However, questions always arise about the responsibility that directors assume in the event that the company incurs debts or has legal problems. Can directors be required to answer with their personal assets? In this definitive guide prepared by Limitless Legal, we will explore Panamanian legislation and the specific scenarios in which directors can assume responsibility, ensuring that you understand your rights and obligations if you hold a management position in a public limited company.
Are directors personally responsible for the debts of a public limited company?
In most cases, the directors of a public limited company in Panama are not personally responsible for the company's debts or obligations. A public limited company is an independent legal entity, and the principle of limited liability ensures that the company's obligations do not affect the personal assets of directors or shareholders. This principle is enshrined in the Commercial Code of Panama.
However, this reservation has certain important exceptions that every director should be aware of. There are circumstances under Panamanian law in which directors may be jointly and severally liable for the company's debts. Next, we'll explore these cases in more detail.
Situations in which directors can be jointly and severally liable
There are specific exceptions in Panamanian legislation that leave directors in a position of possible personal responsibility:
- Decapitalization of the company: If directors allow the company to continue operating without the minimum share capital required by law, this can be considered negligence that puts them at risk of liability.
- Fraudulent handling: Cases where directors act in bad faith, such as falsifying financial reports or carrying out activities that harm shareholders or creditors.
- Non-compliance with fiduciary obligations: If directors do not adequately fulfill their duties to act in the interest of society, they may incur joint and several liability.
- Taxes and Tax Obligations: In some cases, tax authorities can directly complain to directors for tax debts generated by irresponsible or fraudulent actions.
What rights do creditors have to claim liability?
Creditors have the right to claim liability from directors in the cases mentioned above. However, they must demonstrate with clear evidence that the directors acted negligently or committed acts contrary to the law.
In these cases, it is common for claims to be based on the principle of joint and several liability. This means that, if the company's funds are insufficient to cover the debts, the directors involved in the irregular situations may be sued personally.
It's important for directors to be aware of these potential implications and to work under the advice of legal experts such as Limitless Legal professionals, who can help you comply with all regulations and protect your position as a director.
Fiduciary obligations: a fundamental pillar for managers
One of the most important duties of directors is their fiduciary obligation to the public limited company and its shareholders. This means that they must always act in the best interest of the company, being responsible for taking care of the assets and financial stability of the company.
Fiduciary obligations include:
- Loyalty: Directors must avoid conflicts of interest and ensure that their decisions are aligned with the objectives of the company.
- Caution: They are expected to act with the same level of care as a reasonable businessman under similar circumstances.
- Transparency: Directors must keep shareholders informed and avoid hiding relevant information about the company's operations.
Failure to comply with these obligations can also lead to legal claims, stressing the importance of having solid legal counsel.
Conclusion: How to protect yourself as a director of a limited company
Being a director in a public limited company involves a significant degree of responsibility. Although Panamanian laws offer protection under the concept of limited liability, it is essential to understand the exceptions where directors may face personal lawsuits.
At Limitless Legal, we recommend the following to minimize legal risks:
- Consult regularly with specialized legal advisors.
- Maintain clear and transparent financial records
- Avoid decisions that could be considered negligent or malicious.
- Strictly comply with fiduciary and regulatory obligations.
In this way, not only will you protect your personal assets, but you will also contribute to the success and stability of the public limited company you represent.
✍🏼 Take note...
In this article, we have explored the rights and responsibilities of directors within a public limited company in Panama. Although directors are generally protected by the principle of limited liability, there are specific situations where they can assume joint and several liabilities. From fulfilling their fiduciary duties to overseeing share capital, we have offered practical recommendations to protect directors from legal consequences. This article is an essential guide to understanding how to operate under the Panamanian legal framework.