Can You be Sued Individually for Something Your Business Does?
Many people know that when you have a corporation, you are shielded from personal liability for anything the company does. In plain terms, and as a generalization, this means that if the company wrongs someone, whether by injuring them, breaching a contractual agreement, or failing to pay a bill, only the assets of the company can be reached by creditors—not the owner’s or manager’s personal assets.
This is for the most part very true. However, what many people don’t realize is that there are certain situations where the assets of an individual can be reached by a creditor or a judgment holder, even when the “wrong” was committed by the company and in the company name.
Wrongs committed by an individual, even if committed in the company name, can “pierce the corporate veil,” putting the individual’s assets at risk if a judgment is entered against the individual or company. For example, fraud requires a person to scheme, and to intentionally deceive another. If the president of a company defrauds customers, the customers can sue the president individually, even though the fraudulent transaction was between the company and the customers.
As a general rule, when a corporate officer, manager, agent or employee makes a misrepresentation, commits fraud, or sets out to deceive others, the individual could be sued, regardless of whether the transaction involved the company or not.
Watch Corporate Language
Any contracts that the company enters into should be carefully reviewed by a business law attorney, to make sure that no officers or owners are individually at risk. Many people believe that simply signing a contract as “Jane Doe, Manager,” or “Jane Doe, in her corporate capacity,” is enough to shield Jane Doe from being sued individually. This is not true. What matters is not how the corporate agent signed the contract, but what the language of the contract says.
Many contracts have language that suggests, connotes, or could be read in a way that makes the individual signing the contract on behalf of the company individually liable. Courts often bend over backwards to allow aggrieved parties to sue corporate agents in their individual capacity. Language that you may not even notice are in your contractual agreements could be exposing you or your corporate officers or employees to individual liability.
You may be most concerned about being sued by someone outside your company. But what about being sued by other shareholders of your own company? Or by the company itself?
If you are in a higher level position, such as a manager, owner, or officer of a company, you have fiduciary duties that you owe to the company. These include the duties to act in good faith to avoid conflicts of interest, and to avoid acting grossly negligent. These kinds of allegations in a lawsuit can allow the company or its shareholders to sue the agent or officer in his or her individual capacity.
Keep you or your business as safe as possible. Consult with our West Palm Beach commercial litigation attorneys to discover your options. Let our lawyers at Pike & Lustig, LLP, help you. Call us at 561-291-8298 to get a consultation.