January 2013
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A real risk

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Your corporate structure may not protect you from personal liability

by Stephen M. Phillips
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Obviously, you want to avoid personal liability when conducting your business. But in some circumstances, accepting a risk of personal liability is necessary to operate or grow your business. For instance, if you want to compete for government contracts or contract with an owner or general contractor who requires construction bonds, you may decide the benefits of obtaining such contracts justifies the risk of personal liability.

Bonding companies invariably will request personal guarantees from you (and perhaps your spouse) in the general agreement of indemnity before issuing a bid, performance or payment bond. To obtain bonding, you may have to agree to sign the general agreement of indemnity personally and as a company representative. In these situations, be well aware of the personal liability exposure if there is a bond claim and the surety makes a payment or a supplier is not fully paid.

In contrast to a situation where you knowingly accept potential personal liability, you may unintentionally expose yourself to personal liability based on how you operate your company and conduct yourself. To avoid this, be certain to treat your company as a separate legal entity, satisfy the applicable business law requirements and conduct yourself in such a manner so there would be no justification to find you personally negligent in the operation of your business.

Piercing...



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