Can I Be Held Personally Responsible for My Company’s Debts And Liabilities?

We often see business owners getting sued alongside their company for the company’s debts and liabilities. Business owners are often caught off guard by this because when they started their company, they did not think that they could be held personally responsible for the company’s debts and liabilities. That understanding is generally correct.

If a business is set up as a limited liability company or a corporation, under New York Law, owners are generally not personally responsible for the company’s debts and liabilities. However, there are some exceptions to this rule. For example, if an owner personally guarantees a debt, or engages in fraudulent or illegal activities, they may be held personally responsible for the debt.

When creditors go after a business owner for a company’s debts (that the owner has not guaranteed) or liabilities, they typically allege that the company and the owner are one in the same. As such, they claim that the owner is personally responsible for the company’s obligation. In legal terms, this is called “piercing the corporate veil.” To do this, a creditor must show, among other things, that business owner failed to adhere to corporate formalities, that they commingled assets or that corporate funds were being used for personal expenses. This type of claim is not easy to prove. Nevertheless, business owners should take care to keep the personal separate from the business, and to properly follow corporate formalities.

It is also important for business owners who wish to avoid personal liability for their company’s debts and liabilities to choose the right corporate structure when they are setting up shop. As mentioned above, limited liability companies and corporations shield against personal liability. But, if the business is set up as a sole proprietorship or a general partnership, the owner or owners will be held personally responsible for all the company’s debts and liabilities.

Canales PLLC has experience prosecuting and defending veil piercing claims. If you would like to learn more, please feel free to contact us.

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Canales PLLC

As a minority-owned law firm with experience across a broad range of industries and subject matters, Canales PLLC understands the importance of creating diverse, client-centered solutions that cater to each client’s particular needs.