At our Gestoría in Palma de Mallorca, we assist entrepreneurs every day who want to create an SL in Palma de Mallorca, convinced that the concept of “limited liability” fully protects them. Wrong: the corporate shield does not exempt the administrator from personal liability — even with their own assets — when breaching the law, company bylaws, or fiduciary duties.

1. Why can the administrator be personally liable?

• Towards the company, shareholders, and creditors: the administrator is liable for damages caused by actions or omissions that breach the law, bylaws, or their duties (Art. 236 LSC).
• Joint liability: when there are several administrators, all are jointly liable unless one can prove they were unaware of the issue or acted diligently to prevent it.
• Limitation period: liability claims expire four years from the moment they could be brought forward.

2. Duties a responsible administrator should never ignore

1. Diligence: act like a well-informed and prudent professional.
2. Loyalty and avoidance of conflicts of interest: always put the company’s interests first.
3. Business opportunities: do not appropriate business chances that belong to the company.
4. Confidentiality duty: even after stepping down from the role.

Common formal obligations

• Prepare and file annual accounts.
• Keep accounting records in accordance with the Commercial Code.
• Call and preside over general meetings.
• Register resolutions at the Mercantile Registry.
• Comply with tax and labor obligations on time.

3. Liability for company debts and cause for dissolution

If the SL incurs a legal cause for dissolution (e.g., losses that reduce net assets below half the share capital, prolonged inactivity, etc.), and the administrator fails to call a meeting within two months or file for insolvency, they will be jointly liable for subsequent debts.

4. Criminal liability: corporate crimes, tax fraud, and more

The administrator may face imprisonment, fines, and disqualification if:

• Commits or consents to crimes such as fraud, embezzlement, corruption, accounting fraud, or money laundering.
• Fails to prevent crimes committed by employees when they had a duty to supervise or control.

In such situations, having legal guidance from an experienced lawyer in Palma de Mallorca specialized in criminal and commercial law can be essential to properly face any investigation or legal proceedings. An administrator’s legal defense should never be improvised.

Tax crime: the silent threat

If the company defrauds the tax authorities for more than €120,000 per tax and fiscal year:

Regularizing the debt before the case is referred to the Public Prosecutor allows access to a reduced penalty.

5. How to protect yourself: corporate governance and compliance

• Implement a criminal compliance program: internal controls, protocols, whistleblower channels, and training.
• Document all decisions in meeting minutes and accounting records.
• Seek expert advice in taxation, accounting, and commercial law.
• Regularly monitor causes for dissolution and financial stability.

Conclusion

Being an administrator of an SL means accepting inescapable personal liability. “Limited liability” protects the company’s share capital — not your personal assets — if you act negligently or in bad faith. Are you thinking about creating an SL in Palma de Mallorca? At our Gestoría in Palma de Mallorca, we’ll guide you to ensure full legal compliance and help you avoid civil, tax, and criminal risks.