Comment by Borealid
2 days ago
As a slight hint, one of the more common types of corporation is an "LLC". LLC stands for Limited Liability Company.
If the company's owners had unlimited liability for problems the company caused, that wouldn't be much of an LLC, would it? The primary purpose of an LLC is to make it so that the owners (often the founders) cannot personally be held responsible for debts the company incurs, even debts incurred through their instructions.
This also includes debts caused by punishment for the company breaking civil contracts, but doesn't make individuals who use the company to break the law immune to criminal charges. But the standard of evidence for prosecuting that type of malfeasance is pretty high...
> primary purpose of an LLC is to make it so that the owners (often the founders) cannot personally be held responsible for debts the company incurs
It’s more so investors who aren’t involved in day-to-day decision making can invest without worrying that the founders will create liability for them.
This. You can still go after management in certain circumstances
I said the owners can't be held liable, I meant the owners can't be held liable.
You can "in certain circumstances" (negligence, overt criminality...) go after the managers. You probably can't go after the managers for things like producing a business plan they could have plausibly believed was legal and causing the company to incur civil liability.
In the situation described in this article, probably both the owners and the managers (likely the same people!) get away without being held accountable, and the victims have no recompense because the company folds.
LLCs are the limited liability form also most easily subject to veil-piercing (meaning, the courts ignore the limited liability shield to go after the assets of the owners) as most LLCs fail to properly maintain all the technical minutae necessary to actually keep the liability shield in place.
Insufficient capitalization is the #1 reason for piercing the veil (and also works well against corporations). This involves not putting enough investment into a company to pay the foreseeable debts it would incur from its activities. This means: if your LLC incurs debts knowing it lacks the ability to pay them off, the courts can pierce the LLC and go after you.