Business Title Question - Exposure to Bankruptcy

[nocal777]

What is the name of your state (only U.S. law)? California

I am planning to join a small start-up (S-Corporation) located in CA (where it will derive most, if not all, of its revenue) and incorporated in NV. While I don't anticipate the company to eventually have to file for bankruptcy, I am worried about protecting my personal assets if it were to occur.

Right now, I would be brought on as the CFO and Head of Business Development. The company does not have D&O insurance, so I'm wondering if VP of Finance and Head of Business Development would be a better title arrangement for me.

My question is would the latter prevent me from being listed as a director/officer of the company and thus have my personal assets protected from litigation against the company? And, if not, do any of you have a suggestion on how to better handle the titles.

Thanks in advance!

 

[latigo]

Pardon me for asking, but where did you get the mistaken idea that you or anyone else can be held personally liable for corporate debts merely by reason of being an officer or director of the corporation?

You obviously don't have any notion of the laws relating to corporate entities and I suggest you consult with an attorney that does.

 

[nocal777]

You're obviously correct in that I don't know much about laws relating to corporate entities -- hence my question to the forum. Consulting with an attorney is definitely on the agenda, just figured it wouldn't hurt to check with some of the good people here first. If anyone else has anything to add beyond latigo's advice, I'd greatly appreciate it. Thank you in advance.

 

[nocal777]

Thank you very much for your thorough answer, haplesshome45. It's exactly what I was hoping for from someone knowledgeable on this forum. I have pasted your answer below for others that might also be interested since it looks like someone deleted it from the thread after I read it a couple days ago.

-------------- answer from haplesshome45 ------------------
Directors and Officers have a fiduciary duty to the shareholders. In these closely-held entities the litigation (and bankruptcy petitions) that erupts flows more commonly from disputes between the founders, officers and shareholders than with outside parties. Since there is no D&O insurance, to avoid becoming enmeshed in such litigation you simply have to avoid becoming an Officer or Director. If you are a mere employee (without the VP title) then you are (relatively) in a more sheltered position.

You are never shielded from exposure to litigation. This is America. Lawsuits abound in the land.

Although Latigo would have you infer that officers or directors are shielded from suits over corporate debts, that is not absolute; for example, if a creditor alleges that the company purchased goods or services with no intention of ever paying for them, then it will probably be alleged that the officers have perpetrated a fraud and they can well be sued personally. The start-up should avoid situations where goods are ordered with no cash in the till, and no financing (e.g. lease) lined up to pay for them. Officers and directors have wide latitude to use their business judgment; that does not grant them immunity from suit where that business judgment fails the test of probity.