Who is liable in a corporation

Due Diligence: Reliance in good faith upon documents prepared by a professional advisor, such as a lawyer, accountant or engineer can be used as a defence by a director or officer facing a claim.

Fiduciary Duty. Fundamentally, directors and officers owe a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation. This duty prevents a director or officer from, among other things, competing with the corporation or putting his or her own interests before the interests of the corporation. Duty of Care. Unpaid Wages. In order to protect employees from negligent business owners, the law imposes personal liability upon directors for up to six months of unpaid wages to employees upon bankruptcy or liquidation.

Neither does a corporate bankruptcy stay action against others who are liable. This can occur if the shareholders intermingle their money with that of the corporation or identify themselves as the business owner, suggesting that the business is a proprietorship.

More on trust fund tax claims in personal bankruptcy. Analyze which debts are personal and which are corporate. If the court pierces the corporate veil, it decides that the corporate did not really exist as a separate entity and makes the shareholders liable for business debts.

A regular partnership in which all partners are personally liable for business debts is known as a general partnership. If some of the partners want limited liability in exchange for not being involved in the day-to-day management of the business, the partnership can file a certificate of limited partnership with a state business registrar.

A limited partnership has at least one general partner who is personally liable and at least one limited partner who is not personally liable but cannot materially participate in the business. Another limited liability option for general partnerships is to register as a limited liability partnership.

As the U. Small Business Administration explains, an LLP allows all partners to participate in the business and also have limited liability. Before starting a corporation or a partnership, it's best to consult a lawyer who has experience in corporate and partnership laws in your state.