A limited liability company (LLC) is one of the most commonly used legal forms in commercial transactions, primarily due to the principle of the company’s separate legal personality from its partners. As a consequence of this separation, the company enjoys an independent financial estate and is regarded as a distinct legal person, capable of owning assets in its own name, entering into contracts, litigating, and assuming liabilities independently. This legal structure is intended to protect partners from personal exposure to the company’s obligations, such that their liability, as a general rule, remains limited to the value of their respective capital contributions.

However, despite the importance of this principle, it is not absolute. The legislator has intervened in specific circumstances to protect creditors, particularly where the company’s capital suffers substantial losses. As a rule, neither the partners nor the managers are personally liable for the company’s debts, given that the company’s capital constitutes the general guarantee for creditors. Nevertheless, the law obliges the managers to convene the partners within thirty days if the company’s losses reach half of its capital, and it provides that failure to comply with this obligation may result in extending liability to their personal assets for debts arising as a consequence of such failure.

This raises an important legal question: does the mere fact that losses have reached half of the capital suffice to establish personal liability, or does such liability arise only if the failure to act results in the incurrence of new obligations by the company?

The significance of this question is heightened by the confusion that often arises in certain disputes between the general principle of limited liability and the exceptional cases in which the law permits recourse against managers or partners personally. Some creditors may mistakenly assume that the company’s breach of its obligations, or the mere occurrence of significant losses, automatically gives rise to personal liability. This underscores the need to clearly define the scope of the exception in a manner that balances creditor protection with the preservation of the general rule.

In this context, the Qatari Court of Cassation has played a key role in delineating the boundaries of such liability. In its interpretation of Article (298) of Companies Law No. (11) of 2015, the Court has confirmed that personal liability does not arise merely because the company’s losses have reached half of its capital, nor is negligence alone sufficient. Rather, it is required that the company continues its business activity as a result of such negligence, and that new obligations arise directly from this continuation.

Accordingly, liability is contingent upon the existence of a causal link between the failure to take the legally required measures and the obligations claimed, such that those obligations must have arisen directly as a result of the continuation of the company’s activity due to the managers’ or partners’ failure to act.

In this regard, the Court of Cassation held in its judgment issued in Appeal No. 204 of 2024 (session of 27 February 2024) that debts incurred prior to the point at which the company’s losses reached half of its capital do not constitute obligations resulting from the negligence contemplated under Article (298). Consequently, managers or partners may not be held personally liable for such debts unless it is proven that they arose as a result of the company’s continued activity without taking the measures required to address the losses.

This judicial approach makes it clear that exceptional personal liability does not arise merely upon the occurrence of losses or the establishment of negligence in the abstract. Rather, it requires that the obligations claimed have arisen as a direct consequence of the continuation of the company’s activity in breach of the statutory requirements. The purpose of the provision is not to impose personal liability for all of the company’s debts upon its managers or partners in cases of financial distress, but rather to limit such liability to debts that are causally linked to the failure to take corrective action.

Accordingly, the mere fact that losses have reached half of the company’s capital does not, in itself, justify extending liability to personal assets, unless it is proven that the debt arose as a result of such failure. This achieves a balance between protecting creditors where the company continues to operate without addressing substantial losses, and preserving the principle of limited liability within the boundaries established by the legislator.

Creditors may therefore seek recourse against the personal assets of managers or partners where it is established that the obligations claimed arose after the company’s losses reached half of its capital, and that the continuation of its activity was the result of their failure to take the measures mandated by law. The decisive factor is not the company’s financial distress per se, but whether the debt is a product of that failure. In such cases, personal liability may be imposed.

In light of the foregoing, it is evident that this form of liability does not constitute a departure from the principle of limited liability, but rather a narrowly tailored exception subject to clearly defined conditions. Where a causal relationship between the failure and the obligations claimed is established, creditors may pursue managers or partners personally. Where such conditions are absent, liability remains confined to the company’s own estate. This delineation establishes a clear distinction between ordinary business losses borne by the company and culpable conduct that justifies extending liability beyond it.

‍