Will a Personal
Judgment Cost You Your Business?
By Bev Day, MBA, CFE
was shocked. Everything he had worked to build for 20 years was
about to be taken away.
earlier, he had an auto accident and two people were seriously injured.
They sued Fred for payment of medical bills, pain and suffering.
His personal assets didn’t cover the claim and his insurance
company only paid a portion of the expenses. He thought no one could
touch his company assets, but the court awarded the shares he owned
in his own company to the claimant.
if you were personally sued for a matter unrelated to your business.
Like Fred, you struggled through all those entrepreneurial challenges:
planning, financing, and marketing your business. Now it is successful;
you have the protection of the corporate veil; you have nothing
to worry about. Or do you?
small business owners don’t know about the asset protections
available under law. Large businesses understand them; that’s
why they have teams of accountants and lawyers looking out for their
interests. Small business owners usually don’t have resources
to learn how to protect themselves against risks of lawsuits and
attention. If you own controlling shares in a C corporation like
Fred did, you could lose them in a judicial settlement. The shares
you hold in your corporation are considered personal property, hence
they could be taken away.
may say, “That doesn’t make sense.” But here’s
the kicker. When the court gives the injured party the authority
to take your personal property, this includes your stock shares.
The claimant becomes the majority owner (assuming you own more than
51% of the stock in your corporation). He can then hold a shareholders’
meeting and resolve to liquidate your corporation to satisfy his
claim, selling your corporate assets and taking the funds. All you
can do is watch.
published in My