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Shareholder Liability for Corporate Obligations in Small Business

Author

Listed:
  • Deana Nance

    (Louisiana Tech University)

  • Joseph D. Vu

    (DePaul University)

Abstract

This paper discusses the issue of shareholder liability for corporate obligations in small business. Although the law allows individuals to incorporate their businesses to limit liabilities, the courts have in many cases pierced the corporate veil and held shareholders liable for obligations of the corporation. The doctrine of piercing the corporate veil rarely affects shareholders of publicly-traded firms. In most cases, this doctrine would only reach shareholders of small, closely held firms. While fraud or unjust intent provide reasons for the court to disregard corporate entity, oftentimes the honest but uninformed actions of shareholders are to blame. To maintain limited liability, shareholders of small businesses must act in accordance with die corporate form of ownership in representing the firm, managing the firm’s assets, and financing the firm.

Suggested Citation

  • Deana Nance & Joseph D. Vu, 1993. "Shareholder Liability for Corporate Obligations in Small Business," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 2(2), pages 175-182, Spring.
  • Handle: RePEc:pep:journl:v:2:y:1993:i:2:p:175-182
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    References listed on IDEAS

    as
    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Shareholder Liability; Small Business;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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