The Myth of Limited Liability
Most entrepreneurs establish an LLC with the conviction: “if the worst happens, the company’s liability is limited to its own assets — mine are safe.” This is only true in the baseline scenario.
The Federal Tax Service, courts, and creditors have become adept at piercing the corporate veil and holding directors and founders personally liable. There are several mechanisms for doing this.
Mechanism 1. Subsidiary Liability in Bankruptcy
The primary route, provided for under the Insolvency (Bankruptcy) Law (Federal Law No. 127-FZ, Articles 61.11–61.13). If a company goes bankrupt, the controlling persons — the director and founders — may be held liable for all debts that could not be settled from the company’s assets.
Grounds for liability include:
- the director entered into transactions that worsened the company’s financial position,
- accounting records were kept with violations or were concealed,
- assets were transferred to affiliated parties,
- the director failed to file for bankruptcy when required to do so.
Importantly, the burden of proof is partly shifted onto the director. If the tax authority assessed more than 50% of the company’s debts — it is presumed the director is at fault, unless the contrary is proved.
Mechanism 2. Recovering Tax Debt Directly From the Director
Since 2023–2024, the Federal Tax Service has been actively applying Article 45 of the Tax Code and Article 1064 of the Civil Code to recover tax arrears directly from individuals.
The mechanism: if the tax authority proves that the director wilfully evaded taxes, the company’s arrears are recovered personally from the director as damages to the public budget. Crucially, this is possible without the company going bankrupt and in parallel with a criminal case under Article 199 of the Criminal Code.
The number of such claims is growing rapidly. The amounts claimed in individual cases reach hundreds of millions of rubles.
Mechanism 3. Criminal Liability for Tax Evasion
Article 199 of the Criminal Code (corporate tax evasion):
- amounts from 18.75 million rubles over three years — up to 2 years’ imprisonment,
- amounts from 56.25 million rubles — up to 6 years’ imprisonment.
When a criminal case is opened, the investigator may freeze the director’s personal assets as security for a civil claim. The freeze remains in place until sentencing and can last for years.
What Actually Protects a Director
Decision documentation. Every significant decision must be supported by documentary evidence — board minutes, an independent consultant’s opinion, commercial analysis. The absence of documentation turns any unsuccessful decision into a potential ground for subsidiary liability.
Compliance with approval procedures. Major transactions and related-party transactions must be approved in accordance with the articles of association and the law. Breaching these procedures is a direct path to personal liability.
Timely response to signs of insolvency. If the company meets the criteria for bankruptcy, the director is obliged to file. Delay increases the scope of subsidiary liability by the full amount of debts arising after the moment the filing should have been made.
Proper business structure. A shareholders’ agreement, a clear delineation of authority, and independent directors on the board — all of these reduce personal risk.
Read Also
- A Director Paid 50 Million Rubles From Personal Assets: Why Transaction Documentation Is Everything
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Has your company received a tax assessment, or are you as a director concerned about personal liability exposure? Contact us for a legal risk assessment — we help build a defence well before the situation becomes critical.