How much does being incorporated protect you on a personal level.

Asked over 4 years ago - Cape Coral, FL

We opened a restaurant business in June 2009 and found that we no matter what we have done to get people in we are not making it and have no more money to put in. Just as a note this business is incorporated. My question is we have a three year lease and after the month of nov we, and unless some miracle happens we will not have a nickle more to put in anymore not from the business or personally. My biggest concern is the lease and him coming after me for the money. When I say I'm broke I mean I will probally be applying for food stamps broke. How much does being incorporated protect you on the personal level.

Attorney answers (2)

  1. Dennis Michael Phillips

    Contributor Level 17

    Answered . A corporation is a treated as a separate legal person which is why it is said to offer asset/creditor protection for the shareholders. For instance, if you own IBM stock and IBM has a slow quarter and can't pay the lease on a big warehouse, the landlord will not come after you and the other individual shareholders for the money. It will only sue IBM.
    However, in the small business context, you have to watch out for what we call Piercing the Corporate Veil. The argument that the landlord might make in your worst case scenario is that your corporate veil should be pierced and that you should be personally liable because the corporation was merely your alter ego and the corporation was underfunded.
    This assumes that you didn't sign as a personal guarantor on the lease (or any other business contracts). Of course, in your case, you would probably be considered judgment-proof because you don't have any other assets.
    I am not a corporate law practitioner; so take what I say with a grain of salt. I wish you well.

    Dennis Phillips, Esq.
    www.inawreck.com. Negligence is no "accident" (TM)
    Million Dollar Advocates Forum, Mensa, Florida Bar, American Association for Justice, Florida Justice Association, Palm Beach County Justice Association, Broward County Justice Association

  2. Douglas Ron Coenson

    Contributor Level 14

    Answered . In general, the corporate veil protects you on decisions and activities made in the general course of the corporation's intended business purpose. You can be held personally liable for activities done outside the intended business purpose and for those activities that constitute gross misconduct. Although bad business decisions are generally protected, Directors and Officers of the corporate have a fiduciary duty to not undercapitalize the corporation. There is insurance available to individuals to help protect against personal liability.

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