Limiting Business Liabilities

Personal Liability for Actions Performed on Behalf of a Corporation

Can a key stakeholder of a legal entity with limited liability be held liable for actions undertaken on behalf of the company? It turns out that the courts will often hold individuals personally responsible for personal wrongdoing . . . even when their wrongful actions are done on behalf of the corporation.

Personal liability is a sensitive issue for entrepreneurs and small business owners.

There is nothing like pouring your heart and soul into a business, only to have it generate liabilities that deplete your personal assets.

Sole proprietorships and partnerships are easy targets for personal liability. These are called "pass-through" business entities because profits and losses are passed through to the owners. But unfortunately, liabilities are passed through, too. If the business doesn't have enough assets to cover legal judgments, the owner's personal assets are fair game.

Other types of business entities are designed to limit the owners' or shareholders' personal liability. The decision to pursue an LLC or corporate structure is frequently motivated by a desire to manage the owners' legal exposure. But are LLCs and corporations airtight when it comes to personal liability?

Despite what you may have heard, the truth is that LLCs and corporations don't completely insulate owners and management from personal liability. Although they severely limit personal liability, they don't eliminate it entirely. In fact, there may even be instances in which there is personal liability for actions performed on behalf of the corporation.

Intellectual Property Liability

The place where individuals have the most liability exposure seems to be in the area of intellectual property. It used to be that copyright and trademark infringement cases were limited to the corporation; key staff, CEOs and owners were safe. But with the transition to an information-based society brought a renewed legal emphasis on intellectual theft as well as legal precedents that support the argument for personal liability.

Although this area of law is rapidly evolving, at the present time anyone who purposefully appropriates someone else's mark (or encourages a subordinate to do so) can be held personally liable for damages along with the corporation. Additionally, individuals who are deemed to be a "moving force" (e.g. CEOs and department heads) can have personal liability, even if they felt they were acting on the corporation's behalf.

The nature of the act, the motivation behind it and other factors are taken into consideration when determining personal liability. But generally speaking, the current legal environment surrounding intellectual property should be enough reason to educate all of your employees in this area of law.

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