Corporate Principal Liability
- July 7, 2010
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There is an incorrect assumption frequently made on the part of corporate principals- that because they are corporate officers acting on behalf of a business they are not subject to liability for the acts of the Corporation. Through the years case law has continued to address what is known as “piercing the corporate veil” in which the actions of the corporate officers and directors may be examined to determine whether they knew or should have known about harmful acts being undertaken by the Corporation. Individuals wishing to protect themselves and their assets from liability for injuries to person or property caused by their businesses are often led to believe that an entity such as a Corporation or Limited Liability Company will fully protect them. It is only later these individuals learn that they were not fully advised. In truth, the more removed the officers and directors of an entity are from the daily corporate operations the more likely it is they will be protected. In a closely held business, such as a single member LLC or family business it is more likely the officers will be imputed with knowledge in the event of a suit for damages against corporate acts.
In the recent New Jersey case of William Allen v. V&A Brothers Inc. a landscaper’s work collapsed and the homeowners sought monetary damages, as well as treble damages under the home improvemet regulations. The homeowners were awarded damages against the businesses but the Judge dismissed the case as to the company owners. The homeowners were unable to recover damages from the company due to lack of funds and appealed the dismissal of damages against the company owners. On appeal it was decided that the Consumer Fraud Act did not require the normal piercing of the corporate veil but rather, through the use of the word “person” in N.J.S.A. 56:8 et. seq. the Act itself provided statutory authority to impose penalties directly against the principals of the company.
Corporate entities are under a duty to act fairly and reasonably in undertaking their operations and should they fail to do so the liability may reasonably be placed upon those at the helm of such entities.
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