Legal liability?
My business law professor used to say, "Neither officer, director, nor major shareholder shall I be." I recall officers, board of directors and major shareholders can be held personally liable for their actions in a corporation. Any truth to that?
Answers:
Well, if your Law Professor said it, there's a good chance it's true.
No, that's not entirely true. Directors, shareholders, and officers of corporations are generally not liable for the tortious acts or contractual obligations of the corporation. That's the main purpose of forming a corporation.to minimize personal liability. However, that is only a general rule.
Courts may pierce the corporate veil to make directors, shareholders, and/or officers personally liable under certain circumstances such as when the court believes such piercing is in the interest of justice and there has been some abuse of the corporate privilege. Abuses of the corporate privilege is found when (1) the corporation is merely an alter ego of the shareholders/directors/officer... or (2) if the corporation was undercapitalized at formation. The directors may also be held personally liable if the directors took action which amounted to an ultra vires act in conflict with the corporation's articles of incorporation.
You probably misunderstood your professor.
Corporation is a form of business entity which has a separate legal personality from its members. That is why most prefer to incorporate; in case if something happens, the shareholders are not going to be held personally responsible. However, the new Sarbanes Oxley Act of 2002 holds management personally responsible in case if there is a fraud being committed by a corporation.
Yes, if the lawsuits can "pierce the corporate veil" based on the actions of those individuals.
But there are also ethical obligations to being an officer, director or majority shareholder -- and some of those ethical obligations may conflict with the ethical obligations of being an attorney -- putting the attorney-officer or attorney-director in a position of having to chose which ethical rule to violate...
Yes, they can be held liable personally, but only if they do certain things that pierce the corporate veil that protects them. For example, if they intermingle their assets with the company's, then their assets can be used to settle the company's debts.
Enron & Computer Associates.
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