A Corporate Entity Does not Completely Shield Corporate Officers from Tort Liability
Many people set up corporations or limited liability companies so that they can limit their personal liability. While having a properly run corporation or LLC, can limit liability, the limits are not absolute. There are at least three ways an individual can be personally liable, even if acting on behalf of their company. First, under Massachusetts law, corporate officers are personally liable for any torts in which they personally participate. This is true, even if the individual is acting in an official corporate capacity. So, if you are the president of a company and you are negligent, you can be personally liable. Second, if you are a contractor undertaking home improvement contracting work, you are jointly and severally liable with your company for that work by statute. Finally, as I discussed in a prior post, if you are not treating your company as the separate entity it is, a court can pierce the corporate veil and find you individually liable.
What can you do as a business owner to protect yourself? Of course, you should not engage in behavior which lends itself to a tort claim. Treat your customers fairly, don’t lie to them and behave as others would in your profession in the same or similar circumstances. However, even those practices may not spare you from a lawsuit. Anyone can sue anyone at any time. The claims may not be legitimate, but you still have to defend them. To avoid a claim of piercing the corporate veil, as I explained in another post, treat your company as the separate entity it is. To protect yourself, consider what insurance might be available to defend you if claims are made against you. Most insurance policies have a clause that will pay your legal fees and sometimes, those fees exceed the value of the claim against you. Understand what types of claims could be made against you and think about ways to minimize those claims.