Can a Company Be Held Liable if They Know They Did Wrong?

by Erika Waters
A company's wrongdoing could land its officers in court.

A company's wrongdoing could land its officers in court.

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Companies are frequent targets of lawsuits because they usually have cash available to pay large settlement awards. Further, a company can be held liable for its wrongdoing in certain situations. Typically, a company will only be liable for wrongdoing if its agents had knowledge of the bad acts. However, under the doctrine of strict liability, a company may be held liable even if its officers were unaware of the wrongdoing. In addition to corporate liability, there is also the possibility that a company's officers may be held personally liable.

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Criminal Liability

Like individuals, companies can be held liable for certain crimes like theft and forgery. In order to be found criminally liable, it is not necessary that everyone in the company know about the wrongdoing. The company may be found guilty if at least one of its representatives knew of the wrongdoing and the crime was committed on behalf of the company.

Civil Liability

As with criminal liability, a company can be held civilly liable if one of its agents is acting in the scope of his employment and for the benefit of the corporation when the misdeed occurs. Like criminal liability, there is no requirement that every one of the company's representatives know of the wrongdoing in order for the business to be held liable. Corporate liability may arise if a single agent, officer or representative is aware of the wrongful conduct.

Vicarious Liability

Under the doctrine of vicarious liability, corporate liability can arise despite the company and its officers having no knowledge of the wrongdoing. This form of liability is a kind of strict liability, which is referred to as "strict" because lack of knowledge is not a proper defense. This doctrine is based on the idea that because a corporation is not a person, it can only act through the conduct of its employees and agents. For example, an air conditioning company may be held liable for damages when one of its repairmen caused an accident because he was rushing to get to a job on time. It makes no difference that none of the company's officers knew of or encouraged the repairman's conduct.

Piercing the Corporate Veil

It is not only the corporation that can be held liable for wrongdoing. Although corporate officers are generally protected from liability for the corporation's losses, they may be held liable in certain cases. When corporate officers have disregarded certain formalities that are necessary for the operation of a company -- like failing to follow bookkeeping procedures and commingling personal and business funds -- the corporate form will be disregarded and the individuals will be held personally liable for the losses of the business. Although these officers must have knowledge of the wrongdoing to be held liable, it is not necessary for other employees to also know about it.