The concepts of
subsidiary liability and joint and several liability
are very important in contractual relationships and, in general, in the business world. For this reason, it is essential to clearly delimit the meaning and give examples of its practical application with an informative eagerness.
This article will briefly explain what subsidiary and joint and several liabilities consist of in the commercial and administrative field, as well as their main differences and practical effects. In addition, reference will also be made to the current sources of law that support it.
What is Subsidiary Liability?
Subsidiary
liability
refers to the obligations that a party has with respect to the default of a third party, usually a financial debtor, employee or public official.
In these cases, and even if it has not committed the fault, the commercial company or the State becomes liable for the damage that has been caused.
This point is fundamental because, in this way, a perverse vacuum is avoided in the case of abuse by a subordinate; otherwise, the company or Administration could claim not to be responsible for the situation.
This legal consideration has a fundamentally patrimonial objective,but also a deterrent because it forces management to take preventive measures to avoid reaching these situations.
On the other hand, in the financial world this measure is used very frequently,since in many cases the entities claim the presence of a guarantor.
However, it is important to say that subsidiary liability in the Civil Code,although it is provided for, only obliges to pay the debts in case the debtor does not face them.
For example, if a public official does not pay compensation for professional negligence, it would be the Administration that would have to face it. The same can be applied when, due to the responsibility of an employee of a commercial company in the performance of his professional functions, there is a debt or fine to be paid that he does not assume.
What is Joint and Several Liability?
Joint
and several liability
differs from subsidiary liability in that it affects all persons who are in a management position, whether it is a company or government.
In this way, the total amount of the debt, as long as it was not established otherwise, would have to be faced in equal parts by all the members of the Board of Directors or Government.
This legal figure has the function of ensuring that the decisions that will be taken will be adjusted to Law, and today it applies indistinctly to commercial companies and Public Administrations.
It is also true that the cases of joint and several liability must be well defined and, therefore, will have to be recorded in order to be claimed.
This case, in addition, may be subject to judicial interpretation, hence much of the lawsuits that are settled in the Civil or Commercial courts are related, precisely, to this issue.
However, it is important to note that the Spanish legislation on commercial companies provides for several degrees of joint and several liability,having to consult each case separately.
For example, the so-called limited partnership that has two types of partners, those who are jointly and severally liable for the debts generated by the company, and those who only do so with respect to the capital contributed.
Differences between Subsidiary Liability and Joint and Several Liability
Fundamentally, the differences between these types of responsibilities are referred to their practical effect and degree of scope.
It should be noted, however, that it is possible to be liable in solidarity and in solidarity at the same time, without incompatibilities.
- Subsidiary liability applies only in the event that the principal debtor fails to pay,while joint and several liability is activated from the outset. This means that you can claim the aliquot part of the debt from whoever has to pay it from the first moment.
- Joint and several liability involves distributing the payment of a debt or obligation among all members of the management,while in subsidiary liability it may be directed to a single person.
In any case, both figures seek to guarantee legal certainty,so important when it comes to business agreements or legal acts.
In Spain, the main sources of law are the Civil Code, the Criminal Code and the General Tax Law,specifically articles 41 and 42.
conclusion
An increasingly complex economy such as the current one requires new corporate forms and, consequently, differentiations between the most complex degrees of responsibility.
For this reason, it is convenient to know the meaning of each type of responsibility. In the case of companies, it becomes even more important because you have to know what the degree of obligation is.
The
subsidiary and joint and several responsibilities
have been developed because, in addition, it is necessary to guarantee that, in the face of certain punishable actions, there is someone who takes charge of the debts.
