Ask almost any new business owner what “Pty Ltd” stands for, and they’ll tell you it means limited liability. It’s the phrase that gives founders confidence to take risks — the idea that the company’s debts and mistakes won’t follow them home. But limited liability, while powerful, isn’t a magic shield. For directors, it comes with boundaries that are often misunderstood.
Let’s unpack what limited liability really means in South Africa, and where that protection can quietly run out.
The Promise Behind the Pty Ltd
When you register a private company under the Companies Act 71 of 2008, it becomes a separate legal person.
That means it can own property, enter into contracts, earn income, and even get sued, all in its own name.
This separation is what creates limited liability.
It limits the financial risk of shareholders to the value of their shares. If the company collapses, their personal assets remain safe. It’s the reason why entrepreneurship exists at scale — because limited liability allows people to take business risks without risking everything they own.
But there’s a common misunderstanding: limited liability protects owners, not necessarily directors.
The Director’s Reality
Once you become a director, the rules change. You’re no longer just an owner with limited exposure — you are now a custodian of the company’s conduct.
Your name sits at the top of every CIPC record for a reason. You have a legal duty to act in good faith, with care and skill, and always in the best interests of the company — even when those interests clash with your own.
If those standards are breached, the Companies Act allows for what’s known as piercing the corporate veil. In plain terms, this means your personal liability protection can be set aside.
Courts, regulators, or even creditors can hold you personally responsible for losses, penalties, or debts if your actions — or your negligence — caused harm.
Limited liability, in other words, is only as strong as the governance that supports it.
When Protection Turns to Exposure
Section 77 of the Companies Act outlines clear situations where directors can be personally liable.
This includes:
- Signing off on false or misleading financial statements
- Allowing the company to trade recklessly or while insolvent
- Acting without proper authority
- Approving unlawful distributions
- Failing to perform duties imposed by the Act
In these cases, the wall between personal and company liability collapses. Even if you didn’t intend harm, inaction or poor oversight can be enough to expose you.
Many SME directors fall into this trap unintentionally. A late Annual Return, a missing board resolution, or a bank overdraft extended without review — all can build a pattern of non-compliance that leaves directors vulnerable.
Personal Liability Companies: The Intentional Exception
Not every company enjoys limited liability by default. Some, known as personal liability companies, carry the suffix “Inc.”, for example, law or accounting firms.
In these structures, directors accept joint and several liability for obligations incurred during their term. It’s an intentional trade-off: more professional credibility in exchange for greater personal accountability.
So while the average SME director may rely on limited liability for comfort, those leading “Inc.” entities knowingly step into a higher standard of trust and responsibility.
Balancing Risk and Governance
For SMEs, especially where the founder and the director are the same person, it’s easy to blur personal and business lines. Maybe you sign contracts in your own name. Maybe you use the same account for both business and personal spending. Maybe your governance tasks take a back seat to day-to-day survival.
But here’s the truth: the smaller the company, the thinner the line between limited and personal liability.
That’s why digital tools like Intersect Connect exist — to help directors maintain structure, keep records accurate, file statutory returns on time, and prove that governance isn’t just a box-ticking exercise. It’s what preserves your protection when things go wrong.
Keeping Limited Liability, Limited
Limited liability is one of the greatest advantages of company law. It gives entrepreneurs room to innovate without constant fear of personal loss.
But it only stays intact if directors uphold their responsibilities with care.
The paperwork, filings, and resolutions may feel tedious, until the day they protect you. Because in South Africa, limited liability doesn’t just depend on registration; it depends on how responsibly you lead.
