Introduction: is limited liability really limited?

One of the main attractions when you set up a company in Uruguay as a simplified joint stock company (SAS) is precisely limited liability: the shareholder risks only the capital contributed to the company, without putting their personal assets on the line. However, this principle, a cornerstone of modern company law, is not absolute. There are specific situations, provided for in Uruguayan law, in which a shareholder or director of an SAS may have to answer with their own assets for tax debts, social security charges or liabilities arising from abuse of the legal entity. This article explains precisely when and why the corporate veil of limited liability is pierced, which personal obligations shareholders and directors most often face, and what precautions to take to operate within the legal framework without unnecessary exposure. Knowing these limits is not just a technical matter: it is key to making informed decisions about the company’s structure, governance and day-to-day operation.

The principle of limited liability and its foundations

The SAS (Sociedad por Acciones Simplificada) is governed by Law 19,820 and was created to make entrepreneurship easier by reducing the cost and paperwork of setting up and running a capital company. Like the corporation (SA) and the limited liability company (SRL), the SAS gives its shareholders limited liability: each partner is liable only up to the amount of capital they subscribed and paid in, and the company’s creditors cannot go after shareholders’ personal assets to collect the company’s debts.

This principle, recognized in Commercial Companies Law 16,060 and developed further in the specific SAS regulation, allows individuals and legal entities to take business risks in a measured way: if the venture fails, they lose the capital invested, but they are not exposed to losing their home, car or personal savings. The separation of assets between company and shareholder is the conceptual core of a distinct legal personality.

However, limited liability is not an impenetrable shield. The Uruguayan legal system provides, in company, tax and labor rules, for situations in which that barrier is lifted, exposing the personal assets of the shareholder or director. This happens when the benefit of legal personality is abused, when the law expressly imposes joint and several liability, or when there is negligent or fraudulent management.

Personal liability of the shareholder: tax and social security debts

The most frequent and relevant area of personal liability for a shareholder or director of an SAS is tax and social security. The rules of the DGI (Dirección General Impositiva, Uruguay’s tax authority) and the BPS (Banco de Previsión Social, the social security agency) provide for joint and several, and secondary, liability regimes that go beyond the corporate veil and reach the personal assets of those who manage or control the company.

Tax liability before the DGI

The Uruguayan Tax Code provides that directors, managers, administrators and legal representatives of companies who do not act with due diligence in their duties are jointly and severally liable for the company’s tax obligations (article 21 of the Tax Code). That liability is limited to the value of the assets they manage or dispose of, unless they acted with intent (dolo), in which case that limit does not apply. This covers taxes such as the Corporate Income Tax (IRAE), VAT (IVA) and the Wealth Tax, as well as fines and surcharges arising from non-compliance. If the DGI determines that there was deliberate failure to file returns, concealment of income, tax evasion schemes or simple neglect of formal obligations, it can demand payment of the debt directly from the directors, without first having to exhaust the company’s assets. This liability is not automatic, but the standard is lack of due diligence, not intent or gross negligence: in practice, repeated and unjustified failure to meet tax obligations may be enough to open the door to a personal claim.

Liability before the BPS for employer contributions

Social security contributions are taxes, so directors and representatives of the company are also subject to the Tax Code’s joint and several liability for debts with the BPS (employer contributions, employee contributions withheld but not paid over, fines and surcharges), in addition to any specific regimes the social security rules may provide. Withholding employees’ personal contributions and not paying them over is one of the most sensitive situations. For this reason, it is critical for any shareholder or director of an SAS to keep BPS payments up to date, even when cash flow is tight. The BPS has fast enforcement tools and can seize personal bank accounts, vehicles and real estate of those held jointly and severally liable. This risk is especially relevant when you opt for a ready-made (shelf) SAS sale, where the new shareholder must verify that there are no hidden BPS liabilities attributable to the previous management.

Abuse of legal personality: piercing the corporate veil

Beyond the liabilities expressly provided for in tax and social security rules, there is a general principle of Uruguayan company law that allows judges, in cases of abuse of legal personality, to disregard the separation of assets between company and shareholder and hold the latter liable for the company’s debts. This mechanism is known as piercing the corporate veil or disregarding the legal entity.

Abuse of legal personality occurs when the company has been used fraudulently or in bad faith, with the purpose of evading legal obligations, harming third parties or violating public order. Typical cases include:

• Using the SAS as a front for personal dealings: when the shareholder treats the company as an extension of their personal assets, withdrawing funds informally, mixing personal and business expenses and operating without real accounting separation.
• Manifest undercapitalization: when the company is set up or kept with a negligible capital, insufficient for its planned business, with the evident purpose of limiting risk vis-à-vis third parties in bad faith.
• Asset stripping: when, facing a crisis or an imminent lawsuit, the shareholder withdraws assets from the company, sells assets at a sham price or carries out maneuvers to leave the company with no enforceable assets.
• Unnecessary multiplication of companies: when several SASs are created with the same purpose and the same shareholders, splitting assets and operations for the sole purpose of avoiding liability or making it harder for creditors to collect.

Uruguayan courts have applied the veil-piercing doctrine in specific cases, and although the burden of proof lies with the creditor who invokes it, once abuse is proven the protection of limited liability falls away completely. The shareholder then becomes liable without limit with all their personal assets. This risk underlines the importance of transparent management, with clear accounting records, minutes of management decisions, up-to-date corporate books and a real separation between personal and company assets. For those looking to open a company in Uruguay as a foreigner, this point is especially relevant: formality and compliance are not optional.

Director liability for negligent or fraudulent management

The SAS law (19,820) and the commercial companies law (16,060) provide that directors are liable to the company, the shareholders and third parties for damage caused by intent, abuse of powers or gross negligence in the performance of their duties. This liability is personal and may lead to civil and criminal actions depending on the seriousness of the conduct.

Cases of personal director liability

The director of an SAS may become personally liable in situations such as:

• Ultra vires acts: when the director carries out transactions that exceed the powers granted in the bylaws or in shareholder decisions, and those acts harm the company or third parties.
• Undisclosed conflicts of interest: when the director takes part in deals in which they have a personal interest without informing the shareholders or obtaining authorization.
• Gross negligence in management: when, through carelessness, lack of diligence or inaction, the director causes financial harm to the company or jeopardizes its continuity. Examples include failing to file tax returns, failing to register employees with the BPS or failing to renew essential operating licenses.
• Intentional or fraudulent acts: misappropriation of company funds, sham transactions, concealing information from shareholders or authorities, falsifying accounting records.

In any of these cases, the director will be liable with their personal assets for the damage caused, and may be removed from office, disqualified from managing companies and possibly face criminal proceedings depending on the nature of the conduct. That is why anyone who accepts the position of director of an SAS should understand the scope of their fiduciary duties, keep orderly records, act transparently and consult professionals when facing complex situations. How much it costs to maintain a company in Uruguay is not measured only in accounting and registry costs, but also in the cost of the risk of poor management.

Practical precautions to protect your personal assets

To run an SAS while minimizing the risk of personal liability, it is essential to adopt sound governance and compliance practices from the outset. These are the key measures:

• Strictly separate personal and company assets: keep separate bank accounts, do not pay personal expenses with company funds, and document every withdrawal of money as a dividend or a formalized loan.
• Capitalize the company adequately: make sure the share capital is reasonably proportionate to the business and the level of risk taken. An SAS with minimal capital but high-volume operations may be considered undercapitalized.
• Keep tax and social security obligations up to date: file all returns on time, pay taxes and BPS contributions promptly and keep proof of payments and filings. If you run into difficulties, negotiate payment plans before falling into arrears.
• Keep corporate books and records in order: shareholder and director minutes, share register, accounting records. This not only makes legal compliance easier but also lets you show, in the face of any claim, that the company operated transparently and lawfully.
• Always act within the powers granted: if an act exceeds the director’s powers, call a shareholders’ meeting to authorize it formally.
• Get professional advice: having the support of accountants, lawyers and notaries specialized in company law is the best way to prevent mistakes and manage contingencies. Investing in professional advice always costs less than a lawsuit or a demand notice from the DGI or the BPS.

Understanding the types of companies in Uruguay and which legal structure to choose is the first step; managing that structure properly is what really protects your assets in the long run.

Frequently Asked Questions

Is the shareholder of an SAS always liable with their personal assets?

No. Under normal conditions, the shareholder of an SAS is liable only up to the amount of capital subscribed and paid in. However, they may be exposed to unlimited personal liability in cases of tax or BPS debts if, as director or representative, they did not act with due diligence, or when legal personality has been abused through fraud, asset stripping or commingling of assets. The key is transparent management, compliance with legal obligations and proper separation of personal and company assets.

What happens if the SAS has BPS debts and no assets left?

Even if the SAS has no enforceable assets, the BPS can direct its claim at the company’s directors and legal representatives, demanding as jointly and severally liable parties the payment of employer contributions, withheld employee contributions and fines, under the terms and within the limits set by the rules (for example, Tax Code liability is limited to the value of the assets managed, unless there was intent). If liability is confirmed, the BPS can pursue collection and seizures against the liable person’s assets, without first having to exhaust the company’s assets. That is why keeping BPS payments up to date is a priority to protect the personal assets of shareholders and directors.

What should I do if I receive a demand from the DGI or BPS as director of an SAS?

If you receive a payment demand as a jointly liable party, the first thing is not to ignore it: the deadlines to respond or appeal are short. Contact an accountant and a lawyer specialized in tax law immediately to review the debt claimed, check whether it was correctly determined, assess possible defenses and, where appropriate, negotiate a payment plan or file an administrative or judicial appeal. Acting quickly can prevent seizures, additional surcharges and the consolidation of personal liability.

Conclusion: limited liability, yes, but with responsibility

Shareholders’ limited liability is one of the pillars that make the SAS a flexible and attractive vehicle for doing business in Uruguay. But as we have seen, that benefit is neither absolute nor unconditional: it exists when the legal framework is respected, tax and social security obligations are met, and the company is managed transparently with real separation of assets. Knowing when and how the veil of limited liability can be pierced, whether through DGI or BPS debts, abuse of legal personality or negligent management, is essential to make informed decisions and protect your personal assets over time.

At sociedadesanonimas.uy we have a multidisciplinary team specialized in company law, taxation and regulatory compliance. We support you from setting up your sole proprietorship, SAS, SRL or corporation (SA) through day-to-day management, compliance with the DGI, BPS and other authorities, and planning to operate safely and efficiently. If you are evaluating your corporate structure or need to regularize pending matters, book a consultation with our team. Do things right from the start: your assets and your peace of mind deserve it.

Note: The information in this article is general and does not constitute personalized legal, tax or accounting advice. Every business situation is unique and requires specific analysis by qualified professionals.