ARE YOU PERSONALLY LIABLE FOR YOUR COMPANY’S DEBTS?

If you own a business that runs into financial difficulty, and faces shutting down while owing quite a bit of money, you may wonder if you are liable for the debts of the business.

Here are some of the circumstances under which you are, or could be liable.

NO SEPARATE ENTITY.

If your business is a sole proprietorship, or is, for example, “Ostrich Airlines,” then any debts are incurred by the business ore also your debts, because you and the business are the same entity.

YOU GUARANTEED THE DEBTS. 

Assuming that you have established a separate entity for your business, such as a corporation or LLC, you are still personally liable for any debts you guarantee.  Often, when dealing with a small or newly starting company, lenders and suppliers will want a personal guarantee from the owner(s).  If you have signed a personal guarantee, you are personally liable.

YOU DO SOMETHING THAT MAKES YOU SEPARATELY LIABLE. 

If, for example, you are driving a car owned by your corporation, and are involved in an accident, you are personally liable, along with your corporation, for any injuries caused in the accident (assuming that the plaintiff can prove you were at fault.)

Or, for another example, you own a corporation that employs a number of people.  One disgruntled former employee who alleges underpayment of wages could sue the corporation, and join as a defendant, claiming that you personally were the one who set the company policies to underpay employees.

Incidentally, this firm has represented business owners in both of these above situations.

“PIERCING THE CORPORATE VEIL.”

Sometimes a court will disregard a corporate entity, meaning to assume that the corporation doesn’t exist, or is simply an “alter-ego” of the owners.  This can happen where, for example, the owner uses corporate funds to pay personal debts, or takes money out of the corporation so that the corporation will be unable to pay its debts.

When suing a corporation, creditors often name owners or shareholders or directors in the lawsuit, on the assumption that they will be able to establish alter-ego liability.

For a free consultation regarding your potential personal liability and how to minimize your risks, call now (213) 509-1515.