FEATURE
Risk of Personal Liability Despite Incorporation By KENNETH A. ROSEN, WOJCIECH F. JUNG AND MICHAEL PAPANDREA the corporation may be blurred. When business is profitable and invoices are being paid in a timely manner, these problems rarely occur; but when a company faces financial distress, creditors begin to search for alternative sources of recovery — owners, officers, directors and related parties. Below are examples of areas where business owners and managers may face personal liability for corporate debts.
DIRECTOR AND OFFICER LIABILITY Claims against officers and directors have become common in bankruptcy cases. Breach of fiduciary duty claims are the most common, but other claims such as claims for unlawful stock repurchases or dividend payments may be asserted as well.
TRUST FUND TAXES
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ne of the fundamental principles of corporate law is that the owners, directors and officers of a corporate entity generally are not personally responsible for the entity’s debts. Without this insulation from personal liability, individuals would be deterred from taking on risk. However,
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there are circumstances in which this corporate shield is threatened — sometimes due to statutory or other legal exceptions, but often due to poor decisions and lack of oversight by management. These pitfalls are particularly common among small-to-midsize and family-owned businesses, where the lines between individuals and
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Governmental entities often impose personal liability on “control persons” when certain “trust fund” taxes (sales taxes or payroll withholding taxes) remain unpaid. Therefore, potential control persons — directors, officers, anyone with check-signing authority — should ensure that these obligations are remitted in a timely way.
REAL ESTATE When a debtor company leases the real estate on which it operates BACK TO CONTENTS
