One of the advantages of a limited liability company is the limited liability of its partners. This distinguishes it from partnerships, in which a partner (with the exception of a limited partner in a limited partnership and a shareholder in a limited joint-stock partnership) is generally liable with all of his or her assets. This limitation also applies to liability for tax obligations. If a partner's liability is limited, who then bears it?
First and foremost, as with all taxpayers, the limited liability company itself is responsible for its tax liabilities. However, if the company lacks the funds to settle its own tax liabilities, this does not mean that they will automatically be written off or otherwise disappear. In such a case, the Tax Ordinance places responsibility for tax liabilities on the members of the management board. It should be noted that a shareholder who is also a member of the management board will not benefit from this limited liability (as is common practice in smaller companies).
However, it's not the case that when a company fails to pay its tax liabilities, the entire management board doesn't sleep at night, fearing that these liabilities will be collected from its assets. First, for a management board member to be held liable, the collection from the company's assets must prove ineffective. This means that failure to pay taxes on time does not necessarily mean that the company's CEO will be held liable. Enforcement proceedings must be initiated against the company, and the proceedings must be unsuccessful.
Will the management board members then have to pay tax on the company? Not yet. A management board member will be exempt from liability if they identify company assets from which the State Treasury could satisfy its claim. If they fail to identify such assets, they will not be liable for the company's obligations if they can demonstrate that a bankruptcy petition was filed in a timely manner, that restructuring proceedings were initiated within that time, or that an arrangement was approved in an arrangement approval proceeding. Alternatively, they can demonstrate that the failure to file a bankruptcy petition was not their fault. The appropriate time for filing a bankruptcy petition should be understood as the period when the company was not yet permanently insolvent. It is also important that management board members are released from liability by filing a bankruptcy petition by any entity. This does not have to be done by the management board member personally.
A management board member's liability for the company's tax liabilities is determined by the tax authority. The decision itself must be issued in a timely manner. First and foremost, tax liability cannot be transferred if the tax liability itself has already expired. Generally, a tax liability expires five years after the end of the year in which the tax obligation arose. It's worth remembering that applying enforcement measures against the company interrupts the statute of limitations, causing it to start running anew.
Furthermore, it is also important to note that even if the tax liability itself has not yet expired, a management board member will not be held liable if a decision is issued against them after five years from the end of the calendar year in which the tax arrears arose. It is important to note that this deadline is reserved for the issuance of a decision by the first-instance body. An appellate body may also issue such a decision after this deadline.
The decision to impose liability on a management board member is subject to administrative review, meaning it can be appealed. A management board member may also file a complaint against the final decision with the administrative court.
The principles of liability of a management board member also apply, in addition to a limited liability company, to a limited liability company in organisation, a simple joint-stock company, a simple joint-stock company in organisation, a joint-stock company and a joint-stock company in organisation.
But is a shareholder's liability always limited? No. In the case of companies in organization (limited liability, joint-stock, and simple joint-stock), if the company does not have a management board or a proxy has been appointed, the partners are responsible for its obligations.
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This article is for informational purposes only and does not constitute legal advice.
Legal status as of November 4, 2024
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