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

By Erika Waters

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.

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.

Ready to incorporate your business? Get Started Now

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.

Ready to incorporate your business? Get Started Now
What Liability Does a Corporation Have for Its Officers?

References

Related articles

How Can a Person That Owns a Corporation Get Sued for Fraud?

One of the biggest advantages of a corporation is that this business structure protects controlling shareholders from personal liability for the debts and liabilities of the business. This protection does not mean that persons involved with the corporation can undertake fraudulent activities and enjoy immunity under corporate liability protection. Officers, directors and controlling shareholders of the corporation owe the other shareholders a fiduciary duty. Under the legal theory of “piercing the veil,” a controlling shareholder can be held personally responsible for fraudulent actions by the corporation initiated by that individual.

Liability of the Directors of a Nonprofit Corporation

When a nonprofit corporation loses a lawsuit or otherwise owes money, the general rule is that individual members of the board of directors are not personally responsible. However, there are several exceptions to this rule. It is essential that the directors understand their roles and responsibilities before accepting a position on the board. In addition, many nonprofits, particularly larger organizations with more exposure to possible liability, purchase directors and officers liability insurance to further protect the board.

How to Find a Company's EIN

An Employer Identification Number for a business entity is analogous to a Social Security number for an individual. The IRS uses EINs to identify businesses and track their financial data. It's relatively easy to find a company's EIN if the company is a non-profit organization or if the company's stock is publicly traded.

LLCs, Corporations, Patents, Attorney Help

Related articles

The Liability of an S Corporation

It is important for any corporate shareholder to understand what liability he may be exposed to by owning a portion of ...

Are Officers of a Corporation Protected From Lawsuits?

Choosing the legal structure of your company is one of the most important decisions you will make when starting your ...

The Right to Sue a Board Director

Although the board of directors of a corporation wields considerable authority over corporate affairs, shareholders are ...

Can the Officer of a Corporation Be Held Personally Liable?

One of the most significant benefits to organizing a business as a corporation is that it protects the officers and ...

Browse by category
Ready to Begin? GET STARTED