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What is Corporate Liability?

Apr 12, 2023 | Corporate

Corporate liability refers to the extent a company may be held legally liable for the acts and omissions of business partners and the people it employs. Business owners often incorporate to shield themselves personally from any obligations or liabilities with their company’s activities. Under the law, corporations are considered separate entities from their shareholders and operate as a “person.” Corporations can own assets and incur debts and liabilities separate from the individuals who own them.               

What are a Corporation’s Liabilities?

Liabilities are the obligations incurred by a company. All businesses have liabilities, whether they are debts the company has or will owe. They may be legal liabilities arising from the actions of partners or employees. Liabilities can also be finance-related and concern a claim, lien, or accounting. 

With a sole proprietorship or a partnership, the owners of the business can be held personally liable for the debts and liabilities of a company. When a business incorporates, the company conducts business under its own name and shareholders are not liable for the debts incurred by the business or other shareholders. A creditor is limited to collecting a debt from the assets owned by the company — it cannot try to seize the personal assets of the individual shareholders, except in rare cases when the creditor is able to pierce the corporate veil.      

When Would You Be Held Liable for a Corporation’s Liabilities?

The liability protections for corporate shareholders can be set aside by a court under certain circumstances. For example, if a judge finds that the corporate structure was used to deceive or defraud creditors — or personal and business assets were regularly commingled — the corporate veil may be pierced. If a court determines the corporate veil can be pierced and shareholders can be held liable for the company’s debts. 

Limited Liability Clauses, Indemnification, and Advancement

A corporation’s liability can also be limited by contract and should be discussed in the corporate documents. For example, a limited liability clause in a contract can address liability where a contract is not fulfilled. The clause establishes a limit to the liability a party involved in a contract would incur to a part of the transaction or a specific dollar amount. 

A corporation’s bylaws should include a provision indemnifying its directors and officers from liability they may have been subjected to due to their association with the company. Indemnification can be granted by the bylaws; in the certificate of incorporation; by resolving the shareholders or directors; or by a separate corporate agreement specifically providing for it. Specifically, indemnification lets a shareholder obtain their costs and losses at the end of any litigation with their legal fees. Indemnification does not apply to cases arising from gross negligence, criminal actions, or intentional torts.    

Not to be confused with indemnification — which relies on the outcome of a lawsuit — advancement is a provision that can be found in corporate documents which provide a shareholder with immediate relief for legal fees while a legal action is ongoing. These two rights are separate and have no impact on the underlying lawsuit.                                                 

Contact an Experienced New York Business Attorney

If you’re a corporate owner, it’s crucial to understand what corporate liability is and how it can impact your business. The New York corporate transactional lawyers at Brinen & Associates are committed to assisting clients with a wide variety of corporate matters and ensuring their legal and financial interests are protected. Call (212) 330-8151 or send us a message to learn more about our legal services. 


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I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

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