Question:

C-corporation True Liability in Event of Default or Failure?

by Guest57990  |  earlier

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I am considering starting a C-corporation and the 1-year to 2-year outlook is widely uncertain.

My company will have no employees. My salary will be paid by a 3rd party company who pays me and withholds my taxes and then bills the amount back to my company. There will probably be 3 or 4 share holders (me included).

If I have signed no personal guarantees and in 10 months the company stops (no money) and I walk away never to report to work again and I didn't break any laws, is my liability truly zero?

I have heard rumors of people getting judgments against them in spite of LLC/S/C incorporation but I do not know the accuracy of such stories. Allegedly a judge studies the case and declares the corporation a fakery whose only existence was to act as a shield.

Although I have every goal of success, I want absolutely no baggage should the venture fail.

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  1. What you need to be concerned about is piercing the corp veil where you would be liable. Here are the reasons a court would deem that you did that and can impose judgements on you:

    Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances)

    Failure to observe corporate formalities in terms of behavior and documentation

    Intermingling of assets of the corporation and of the shareholder

    Treatment by an individual of the assets of corporation as his/her own

    Failure to pay dividends

    Siphoning of corporate funds by the dominant shareholder(s)

    Non-functioning corporate officers and/or directors

    Concealment or misrepresentation of members

    Absence or inaccuracy of corporate records

    Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings; Alter Ego Theory

    Failure to maintain arm's length relationships with related entities

    Manipulation of assets or liabilities to concentrate the assets or liabilities

    Other factors the court finds relevant

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