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Bahamian Business Entities and Liability in Litigation

Posted by M. Margaret Gonsalves-Sabola | Aug 15, 2017 | 0 Comments

Liabilities 1

Depending on the organization of your business, you may be subject to different amounts or kinds of liability if your business becomes involved in litigation. Not only is consideration of exposure to liability very important when choosing what type of business entity to use, but also if you anticipate litigation in the future, you should try to figure out for what and for how much you could potentially be liable and whether you may need insurance to cover those risks.

In The Bahamas, limited liability companies and limited liability partnerships give businesspeople an assurance that they will not be responsible personally for all of the entities' debts. In a limited liability company, members are not liable for any more than the amount unpaid on the member's shares, or an amount that each member agrees to contribute if the company is wound up. (Companies Act, 1992, Sect. 4.) In a limited liability partnership, general partners are jointly and severally responsible for the partnership's debts, but special partners are only liable up to the amount that they contributed to the partnership's capital. (Partnership Limited Liability Act, Sect. 3.) Similarly, companies limited by guarantee require that members guarantee the company's debts only up to a certain agreed-upon amount per member.

The issue of who is liable to pay an entity's debts may arise during winding up or insolvency proceedings in The Bahamas. In companies, shareholders may have to contribute funds to settle a company's debts if it cannot pay them upon winding up. (See, e.g., Companies Act, 1992, Sect. 64.) Although in general special partners in a limited liability partnership are not liable for debts, if the partnership cannot pay its debts the law requires that the special partners contribute additional funds to allow the partnership to do so. (Partnership Limited Liability Act, Sect. 15.) Directors, officers, members, and partners should be aware that additional liability may be imposed if a court finds misconduct during insolvency or winding up. For example, directors may be charged with a company's insolvency if there was fraud committed within the 12 months before winding up began, committed with the intent to deceive creditors.

Aside from issues specific to insolvency or winding up, directors who breach their duty of care to the company during its operation may be found negligent by a court and held personally liable for resulting damage to the company. The duty of care requires the director to act in the best interests of the company. Directors may face additional liability for their own wrongful acts as well. As to partnerships, general partners or partners in a general partnership are liable for all debts of the partnership and their own fraudulent acts or negligence in operation of the partnership.

Generally, Bahamian parent companies are not liable for their subsidiaries' debts absent an agreement to the contrary. However, in certain circumstances creditors may seek to “pierce the veil”, or attack the parent company's assets because it is so closely connected to the subsidiary that it should be held responsible. Piercing the veil tends to be most viable when the subsidiary is so closely controlled by the parent company that it effectively is a sham used to avoid the parent company's liability.

An attorney can help you evaluate your liability as a director, shareholder, or partner. To find out more, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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