Company's debt 'not personal responsibility of owner'

If companies failed, they could then be wound up easily in liquidations that contained the amount of debt and repaid it with the company's assets. Photo / APN

The debts of a company are not the debts of the person who owns it, says Professor Susan Watson, deputy dean of the faculty of law at Auckland University.

She said the Companies Act allowed companies to exist as their own legal entities - effectively a separate individual from those listed as the shareholders.

The "limited" at the end of the company name stood for limited liability, which meant shareholders' liability for debts was constrained by the value of the shareholding.

In New Zealand that could be just a single dollar.

It allowed companies to be started easily, encouraging entrepreneurs and innovation and protecting them from debt.

If companies failed, they could then be wound up easily in liquidations that contained the amount of debt and repaid it with the company's assets.

But Julien Leys, managing director of PR Partners, an Auckland public relations agency, said the public might not draw the same legal distinction.

He said that many people would expect Mr Dotcom to have a moral obligation to pay the debts ofa company he owned.

"From a public perspective, people would assume he is responsible for the company - and its debts.

"It's a bit different if you're a small business owner finding it hard, and debt is accumulated to keep afloat."