Corporations

Closely Held Corporations

LLCs

Partnerships
When the partnership can
be held liable to 3rd
parties:
Liable for partner's
acts done in the
ordinary course of
business
Liable for partner's
wrongful acts done
with authority of
partnership

When the corporation can

be held liable to 3rd
parties:
In contract or tort

When the corporation can

be held liable to 3rd
parties:
In contract or tort

When the LLC can be held

liable to 3rd parties:

When the individual

partners can be liable to
3rd parties:

When the individual

directors/officers can be
liable to 3rd parties:

When the individual

directors/officers can be
liable to 3rd parties:

When individual members

can be held liable to 3rd
parties:

All partners are jointly and

severally liable for acts
committed by one of the
partners EXCEPT:
Newly admitted
Partners are not
liable for previous
Liabilities
Old partners are
liable for past
liabilities
A partner went
beyond ordinary
negligence in his act

Directors are only ever liable to

shareholders under corporate
laws for fiduciary violations

Since CHCs have to flexibility

to structure management
however they want (can
eliminate BOD and other
formalities) the effect on
liability to 3rd parties is based
only on agency UNLESS veil is
pierced
Shareholders,
directors, and officers
in a CHC may be the
same group of
people!

***Can exculpate for DOC

claims***

NOT ASSUMED
AGENTS just by the
status of being board
member
Could be liable under
tort theory if the board
asks her to do
something as an agent
and she does so

Officers are different because

we already assume that they
are agents
Liable ONLY for their
own torts/personal
guarantees

When shareholders can be

held liable to 3rd parties:

When shareholders can be

held liable to 3rd parties:

They usually are not! This is the

point of having a corporation,
we want to encourage passive
investment and no one would
invest if they could possibly be
financially liable (beyond their
$$ invested) for decisions they
had no part in making

They usually are not! But if

the corporation is run more
like a partnership then they
could be held liable under a
veil-piercing theory

EXCEPTION:
You could have a
shareholder be liable
but only through
status as an agent if
they start acting for

EXCEPTIONS:
Piercing the
corporate veil
Shareholder starts
acting as an agent
for the company

RULLCA 304(a)(1):
The debts, obligations,
or other liabilities of an
LLC (for contract, tort,
or otherwise), are solely
those of the LLC

No liability whether arising in

contract/tort or otherwise simply
because of status as members
or managers 301(a)

EXCEPTIONS:

Piercing of LLC veil (but

see 304(b)tougher
to pierce because
cannot rely on failure to
observe formalities)

Consent either through

personal guarantee
303c OR in articles of
organization (basically
if AGENCY status is
found)

the company
NOT ASSUMED
AGENTS