Ordinarily, the directors of a Georgia corporation are protected from liability in a dispute. However, under certain circumstances, director liability is unavoidable. In those instances, plaintiffs in lawsuits can “pierce the corporate veil” and may receive restitution directly from a company’s directors.
Steps can be taken by the business and its owners/directors to avoid this eventuality. For example, a company’s accounts need to be kept separate from any personal accounts. If a company and its owner share a bank account, the courts may determine that there is no way to separate the individual from the owner.
Another way to avoid being held personally liable for the actions of the corporation is to be sure that it is well documented that the company was formed for a legal purpose and not under any fraudulent circumstances. This leads to another important task that is often viewed as tedious, especially by smaller corporations — record keeping. If a company’s corporate records are not kept up-to-date, an individual’s immunity from liability could dissolve. Policies and procedures for making decisions on behalf of the corporation could also come under scrutiny. Therefore, documentation plays a crucial role in preserving a director’s freedom from liability.
Georgia business owners and directors need to ensure that these steps are taken in order to avoid becoming personally liable if the company is sued. Even a company that does its best to avoid opening itself up to lawsuits can end up in court. Adhering to the legal requirements of a corporation can help discourage director liability should a company find itself defending against a lawsuit.
Source: FindLaw, “Officer and Director Liability: “Piercing the Corporate Veil”“, Dec. 14, 2014