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Ask a Lawyer -- Corporations
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Question: We purchased a piece of real estate under our S Corporation. Since then we are in the state of foreclosure concerning that property. Can anyone who was named as a member of the board of directors or appointed a position in the company (for example: president) be liable for any recourse concerning the property. Meaning could some how personal assets get liquidated? Response: This is a state corporate law issue. "S" or "C" corporation is a federal taxation distinction that generally is not recognized at the state level for purposes of its corporate code. Under state corporate law, "S" and "C" are not distinguished and treated the same. One cannot read three sentences on this issue and then state with certainty liability exists or does not. The general rule is that shareholders, directors, and officers are not personally liable for corporate debts; however, there are exceptions to every rule in the law. For example, if a shareholder / officer co-signed or guaranteed the loan used to purchase the real estate owned by the corporation, then that individual could be held personally liable. Another exception could exist if an officer / director made materially false representations to the bank which relied upon them in making the loan. Another exception could be if the shareholder / officer had co-mingled his or her assets with those of the corporation and / or disregarded corporate formalities in operation of the corporation. These are all fact intensive issues requiring one to sit down with a local corporate attorney and thrash the wheat from the chaff to arrive at any sort of conclusion as to potential personal liability. The only further comment I can make is that if an individual was not a shareholder of the S corporation, chances of personal liability are lower. For closely held corporations, it is generally shareholders who guaranty corporate debts and who risk being held liable when corporate formalities are not followed. Submitted: 6-25-2005; Gene, Indiana Response: 6-26-2005; JJR Add A Comment |
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