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Company Officer (passive) liability if a company is sued by vendors/customers

James Cole's Profile

As a former co-founder, shareholder and officer (not invovled in any financial, operational activities or other decision making criteria as directed by Chairman/CEO) of a company incorporated in Texas March 2004; the miniority shareholders have agreed to file and serve a grievance with the state judge to force the company into receviership.  The key reasons, fraudenlent financial transactions, deceptive shareholder practices, issuing worthless payroll and expense checks, knowing the money was not in the bank, signing a Letter of Intent to sell the company to a company that does not come close to another company that had bonified LOI and termsheet on the table and a flagrant disregard exercising fiduciary responsibilies for his shareholders, employees, vendors and customer. If the shareholders win, several companies have advised they would still be interested in restructuring their LOI's to get the company back on its feet.  Just recently I was laid off as an employee by the chairman (with no acknowedgement of my officer status).  Others will follow (per the Chairman's promise) when the suspect company agrees to  a purchase agreement.  The chairman signed the suspect LOI.   I am not sure what my liability might be as token  officer over the last 8 years should the vendors and/or customer decide to file separate or class action suit.  Has anyone been in this position?  Apogies for the long winded detail..

Your thoughts would be appreciated.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

You have liability because you were an officer (vs a bank VP who is really in name only). How much will be up to the Court based on Texas law (which I am ignorant of).

However, I would now try to document every aspect of your "officership", the alleged mis-deeds by those who not only controlled the bank account, but the corporate signature so if you are sued you can show you had little/no authority or power or pre-direct knowledge of the actions you are being sued for.

Oh yeah, talk with a good lawyer who has tried these cases before!!!!! Spend some money now, could be worth a lot of money saved later.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Wayne is spot on. Document, document, document. It will be easier to remember now, then later. In theory you are protected by the corporate veil. It is more likely, if the shareholders file suit you will be required to appear in a deposition.

Good luck.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I don't believe the corporate veil will protect you from " fraudenlent financial transactions, deceptive shareholder practices, issuing worthless payroll and expense checks, knowing the money was not in the bank".

These are usually criminal charges that no only can a corporation be brought up on, but the "key" corporate officers as individuals.

Again, talk with a good, knowledgeable attorney.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

As a corporate officer, you are generally liable for the acts of the corporation. You may have some defense, if you can prove that you objected to the questionable acts and they were done despite your objections or refusals. But it is still a weak position. Ignorance (intentional or otherwise) is not a good defense, the thing about corporations is that there is a presumption that if one officer knew about the acts, then all did. (This is even more true in small companies as opposed to large or multinational companies.)

The good news (if there is any) is that your corporate insurance is obligated to cover you and pay for your defense costs.

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