February 23, 2009
By: Theodore F. Claypoole
If you are a shareholder of a corporation or a member of a limited liability company, then you may subject yourself to personal liability if you fail to hold yourself out as an officer or member of the entity. Recently, the Centre County Court of Common Pleas of Pennsylvania in Schwenke, Inc. v. J.P. Construction, Inc., and Jeffery Carozza, allowed a plaintiff to proceed with its case against both a corporation and its sole shareholder where: (1) the sole shareholder accepted the bid for services with the plaintiff by signing his name and writing a reference to his corporation; (2) there was no addition of the word “incorporated” or any reference that the sole shareholder signed as an officer and not in his individual capacity; (3) there was no evidence that the sole shareholder corrected or rejected the idea that the plaintiff should deal with him separately from the corporation; and (4) there were no documents in the transaction that listed the sole shareholder as an officer of the corporation, making it unclear under which capacity he entered into the contract.
It is important for a shareholder of a corporation or a member of a limited liability company to refer to himself or herself as an officer, member or manager of the corporation or limited liability company when conducting business in such capacity (e.g., when introducing himself or herself and in business cards) and to sign any contracts or other documentation in his or her capacity as an officer, member or manager of the entity (i.e., XYZ, Inc., by John Smith, President); otherwise, a Court may find that the shareholder or member, and not the corporation or limited liability company, is the liable party. For more information on this case or how you may protect yourself from personal liability when conducting business in your capacity as an officer, member or manager of your corporation or limited liability company, please contact Theodore F. Claypoole.
