are you held liable if sued?

[jrod31]

If I am a C corporation of S corporation, and a client sues me, what am i held liable for?

[jasaunders]

When you say a client sues you, do you mean you are listed on the lawsuit or the company is?
Under a corporation, if they sue the company, your personal assets are generally protected. I use the word generally because each state has their own laws regarding what is protected and in what circumstances they wouldn't be (ie. if you personally acted illegally).

If you were sued as an individual, then they could go after all your personal assets. If you were sued as an individual for something the company did or you did acting as a representative of the company, you should file a motion to have the case dismissed against you.

[radreality]

the whole key to not having the corporate vale pierced, is to keep the finances completely separate. Different bank accounts, if you buy something for the business make sure the business pays you back and its documented, make sure any money that is taken out for you personally is properly documented, make sure any money you put into the business is properly documented; etc.

As long as the court cannot not link personal assets and company assets, then you should be good.


______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[radreality]

having an attorney and accountant would be highly recommended though. So that way you don't have to worry about it that much.


______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[jrod31]

I really appreciate your response guys, here is my situation, I started an advertising magazine, it cost us about $8000 to run on a monthly base. we obtain several clients, we launch the first month on the second month we fell behind iin red. The whole finance was manage completely wrong. Now we dont have the money and we owe several clients. I fully want to take responsablilty for paying them back, but my partner is saying that we dont have money to pay back. I am telling him let face each client and tell them the truth and to give us time, my partner doesn't agree.... I feel that is not fair. so my concern is that i own a house, we are a S corporation, if the clients decide to take the business to court or us to court, what are my risk? now i dont think is fair that i face the whole situatuion. any advise will be greatly appreciated.

thanks in advance.

[radreality]

yeah thats a tough situation. Its hard to say what they can and can't do without looking at the financial records.

You are right though. You should contact your clients before they contact you, and be upfront about the situation. Most will be willing to work with you. But you can't expect clients to work with you if they can't trust you to be honest with them.


______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[pbradish]

I agree with Rad, you have to be upfront with the clients and let them know the situation. Plan for the worst but hope for the best.

[Nigami Enterprise]

I agree with Rad, you have to be upfront with the clients and let them know the situation. Plan for the worst but hope for the best.

Honesty can get you along way.

[akula]

I really appreciate your response guys, here is my situation, I started an advertising magazine, it cost us about $8000 to run on a monthly base. we obtain several clients, we launch the first month on the second month we fell behind iin red. The whole finance was manage completely wrong. Now we dont have the money and we owe several clients. I fully want to take responsablilty for paying them back, but my partner is saying that we dont have money to pay back. I am telling him let face each client and tell them the truth and to give us time, my partner doesn't agree.... I feel that is not fair. so my concern is that i own a house, we are a S corporation, if the clients decide to take the business to court or us to court, what are my risk? now i dont think is fair that i face the whole situatuion. any advise will be greatly appreciated.

thanks in advance.

In the short run..I think your parter is right..tell the creditors that you're out of business, that they've lost everything, move on and wait for them to make a move...which they probably won't.

[radreality]

In the short run..I think your parter is right..tell the creditors that you're out of business, that they've lost everything, move on and wait for them to make a move...which they probably won't.

WHAT!?!?! thats the pussy way to do it (or australian way I guess). Man up, take responsibility. Your creditors will just hire collection agencies and at that point they don't care what they take. They will take anything they want, then you will be forced to go to court to get it back if they wrongfully took it (such as personal assets).

Plus, most creditors make you sign personal guarantees. So even if your company does go out of business, you have to pay them personally. Do you do that with them?

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[akula]

WHAT!?!?! thats the pussy way to do it (or australian way I guess). Man up, take responsibility.

heheh...that's irrelevant...but commendable

Your creditors will just hire collection agencies and at that point they don't care what they take. They will take anything they want, then you will be forced to go to court to get it back if they wrongfully took it (such as personal assets).

good point. the creditors may try to enforce their legal rights in one way or another...but then again, they might not

Plus, most creditors make you sign personal guarantees. So even if your company does go out of business, you have to pay them personally. Do you do that with them?

I'm not sure that personal guarantees are an issue in this set of facts, but personally, I refuse to give guarantees. Other people may not.

Look...obviously, if there's an upside to it, the guys can try to negotiate some kind of an arrangement with their creditors...so what? but if there is no upside, fuck altruism.

[akula]

I really appreciate your response guys, here is my situation, I started an advertising magazine, it cost us about $8000 to run on a monthly base. we obtain several clients, we launch the first month on the second month we fell behind iin red. The whole finance was manage completely wrong. Now we dont have the money and we owe several clients. I fully want to take responsablilty for paying them back, but my partner is saying that we dont have money to pay back. I am telling him let face each client and tell them the truth and to give us time, my partner doesn't agree.... I feel that is not fair. so my concern is that i own a house, we are a S corporation, if the clients decide to take the business to court or us to court, what are my risk? now i dont think is fair that i face the whole situatuion. any advise will be greatly appreciated.

thanks in advance.

these things are normally solved by negotiations, out of court

negotiations work out when both of the parties can brainstorm options to resolve the conflict

if you can't negotiate directly, your local court has mediators who will help you guys settle the matter

[jasaunders]

It all comes down to how much money you owe them. If you could clarify how much money you owe and to whom, I could provide much better advice.

If it is a small amount, Akula is right, they probably won't come after you for anything. If they do, it would be covered in small claims court, which is no big deal.

If it is a larger amount, you have a larger chance of them coming after you. However, this comment "Your creditors will just hire collection agencies and at that point they don't care what they take. They will take anything they want, then you will be forced to go to court to get it back if they wrongfully took it " is false. The collection agencies cannot and will not take your personal assets. If there is nothing to collect from your business, they won't be successful there either. In order for them to garnish from your bank accounts or wages, they need to first win a judgement from the court and after they win the judgment they must comply with the jurisdiction's laws(typically the defendant would need to disclose financial assets or there would be a discovery phase), only after that can they file for garnishment and file for civil contempt charges if you don't comply.

This isn't the wild west. Collection Agencies are regulated and licensed by the government. And, Collection Agencies are not successful in collecting most of the time. If you truly have no assets and everything was run in your business legitimately, then the downside of not paying is going to be a headache and possible legal fees.

The biggest things to be concerned about are if the business and your personal assets and financials have stayed seperate, if you acted unethically or illegally in any way.

[akula]

The biggest things to be concerned about are if the business and your personal assets and financials have stayed seperate, if you acted unethically or illegally in any way.

great post and, that's right - if director's duties haven't been breached, the veil stays

although, statements such as "The whole finance was manage completely wrong" may mean that the duties were breached, in which case - jrod31 - you're gonna be personally on the hook

th point: don't make admissions unless you know what they mean, and the consequences..i.e. deny everything, keep your mouth shut

[jrod31]

The amount of money we owe is a total to about $12,00. we have like 3-4 client that we owe around$1,500 and the rest averages from $400-$700, now the business has its own bank account. all the check was deposit under the business name. at no time our personal finance was mix in with the business. we fell short in sale and that why we couldn't continue with the business. Now i do agree that we shouldn't just walk away, but at the same time if tell them that i will pay them back, thats putting myself in a promise with them, now i dont think my partner wants that, so i dont think its fair for me just to get into the promise.