While many entrepreneurs are attracted to the limited liability offered by some corporate structures, that protection should never be taken for granted. The law recognizes a number of clear-cut exceptions to this liability protection that makes it necessary for everyone working for a corporation to always exercise sound judgment while obeying all laws.

            In order to steer clear of any complications, it's always wise to periodically review the types of acts that can quickly lead to serious lawsuits and put you at risk for significant personal penalties.

Actions and Behavior That Can Create Liability for Corporations and Certain Employees

  • Knowingly engaging in fraudulent or illegal behavior that causes your company (or specific individuals) to suffer harm. The alleged money laundering and other activities of HSBC in recent years provide a prime example of such wrongdoing – although the banking executives who may have been involved all escaped “personal accountability;”

  • Deciding to personally guarantee certain loans to your company (or firm) that are later defaulted upon. Even when done in good faith, you can still lose vast sums of your own personal wealth. This type of event was prominently featured in the “fact-based” legal drama A Civil Action;

  • Pocketing the taxes withheld from employee paychecks and never paying that money to the government. Embezzlement and similar corporate crimes are very common;

  • Committing some type of tort causing physical injury to someone else, even if it occurs while performing some of your official duties;

  • Carelessly mixing the handling of both corporate and personal finances – even when the outright crime of theft may not be a primary objective. Corporate ledgers and books must be frequently reviewed and audited to discourage the type of lazy bookkeeping that costs corporations, their business partners, shareholders and everyday consumers a fortune each year.


    When financial matters are seriously neglected, courts reserve the right to claim that a separate functioning corporation never really existed – thereby taking away any protection for specific wrongful acts.

    It's this last legal threat that often motivates corporate owners and officers to make sure that they are always:

  • Issuing stock in a timely manner, in keeping with all articles of incorporation and bylaws;

  • Making sure that the corporation/business entity is kept properly funded;

  • Fully respecting all shareholders’ rights and privileges;

  • Requiring the board of directors to handle all of their duties in a timely and appropriate manner; and

  • Keeping the corporate books fully separate from the finances of any one person or group involved in the corporation.


    Of course, while it's important to always run a corporation in keeping with all laws to fully enjoy the right of limited liability – it's far wiser to simply conduct all business affairs in an exemplary manner because it's the right thing to do.


To obtain help with handling all of your Georgia business planning needs, please contact Shane Smith Law today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.

Shane Smith
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